Quigley’s Corner 01.02.18 : Investment Grade Debt Issuance Day 1 2018
Investment Grade New Issue Re-Cap : First Day of 2018 Finds (5) Issuers | $7.35b Floated
Today’s IG Primary & Secondary Market Talking Points – Setting New Post-Crisis Lows
Syndicate IG Corporate-only Volume Estimates For January
Global Market Recap
The “QC” Geopolitical Risk Monitor : My Button is Bigger Than Your Button!
Key FOMC Dates for 2018
Hawks vs. Doves: A Look at the FOMC Voting Line-up for 2018 from 2017
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
New Issues Priced
Indexes and New Issue Volume
Lipper Report/Fund Flows – Week ending December 27th
IG Credit Spreads by Rating
IG Credit Spreads by Industry
New Issue Pipeline
M&A Pipeline Highlights
Rates Trading Lab
Economic Data Releases
Tomorrow’s Calendar
Investment Grade New Issue Re-Cap – Nice Kick-Off to 2018!
First up- a very Happy New Year to you and welcome back to the “QC.” This first edition of 2018 serves up the usual daily data you’ve come to expect with today’s specials in the form of key U.S. Monetary Policy tables as a handy reminder for you as well as a tracking of Fed Hawkish and Dovish voting members given the shifts and changes of the FOMC Regional Presidents. But first let’s run down the familiar order of all things primary related in our IG dollar DCM and focus on investment grade debt issuance day one of 2018:
Today the IG dollar DCM hosted 5 issuers across 10 tranches totaling $7.35b. The SSA space was quiet today.
Both the S&P 500 and Nasdaq closed at new all-time highs while the recovery in global manufacturing continued on its upward trajectory.
CDX IG29 was at a new tight as of 4:45pm ET.
Here’s a look at MTD IG Corporate new issue volume as measured against syndicate desk estimates:
- MTD we’ve priced 5.68% of the syndicate forecast for January IG Corporate new issuance or $7.35b vs. $129.29b.
- There are now 7 issuers in the IG credit pipeline.
Today’s IG Primary & Secondary Market Talking Points – Setting New Post-Crisis Lows
- Today two of Berkshire Hathaway Energy Company’s four new tranches, the long 10s and long 30s, launched 2 bps tighter than the tightest side of guidance.
- The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 10 IG Corporate-only new issues was <18.20> bps.
- The IG Average (+98), “AAs” asset class (+55) and “As” (+76) all tied their post-Crisis low.
- Of the 19 major industry sectors, a total of 7 (36.8%) tied their post-Crisis lows as follows: Banking (+81), Consumer Products (+83), Energy (+131), Industrials (+103), Insurance (+107), Real Estate (+110) and Retail (+91) all set new post-Crisis lows.
- BAML’s IG Master Index widened 1 bp to +99 from +98.
- Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at 0.93.
- Standard & Poor’s Investment Grade Composite Spread was unchanged at +137 and again tying its post-Crisis low set on Wednesday, December 20th, 2017.
- Investment grade corporate bond trading posted a final Trace count of $2.4b on Friday versus $5.5b on Thursday and $4.1b the previous Friday.
- The 10-DMA stands at $8.7b.
Syndicate IG Corporate-only Volume Estimates For January
| IG Corporate New Issuance | January 2018 | vs. Current MTD – $7.35b |
| Low-End Avg. | $128.54b | 5.72% |
| Midpoint Avg. | $129.29b | 5.68% |
| High-End Avg. | $130.04b | 5.65% |
| The Low | $100b | 7.35% |
| The High | $150b | 4.90% |
Global Market Recap
- U.S. Treasuries – European bonds sell off and rate lock selling sent Treasuries south.
- Overseas Bonds – JGB’s were closed for holiday. Europe was hit very hard.
- 3mth Libor – Set at the highest yield (1.69693%) since December 2008.
- Stocks – The NASDAQ leading U.S. stocks higher at 3:30pm.
- Overseas Stocks – China & Hang Seng with big rallies. Europe closed mixed.
- Economic – Markit Manufacturing PMI was the strongest since March 2015.
- Overseas Economic – Mixed Manufacturing PMI data in Europe but overall very good.
- Currencies – USD lost ground vs. all of the Big 5.
- Commodities – CRB, gold and wheat higher. Crude oil had a very small loss.
- CDX IG: -0.53 to 48.49
- CDX HY: +0.31 to 306.69
- CDX EM: -2.42 to 116.95
*CDX levels are as of 3:30PM ET today.
-Tony Farren
The “QC” Geopolitical Risk Monitor
Updates are highlighted in BOLD print!
| Risk Level/Main Factor | Geopolitical Risks |
| HIGH + “North Korea” |
1/02 – Announcing that he’ll send a NOKO team to the Seoul Olympics and desires constructive dialogue with SOKO, dictator Kim Jong Un also announced that “the entire U.S. territory is within the range of a (NOKO) nuclear strike and a nuke button is on *(his) desk” claiming “it is a reality, not a threat.” 12/20 – U.K. successfully tests Sea Ceptor air defense aboard HMS Argyll recently sent to Sea of Japan to join U.S. Naval ships. System shields against multiple airborne targets protecting 500 square mile area. NOKO pushed further into a corner. 12/05 – U.S. reveals powerful microwave pulses from missiles that can disable NOKO’s electronic missile/launch systems. 12/02 – WH Nat’l. Security Advisor H.R. McMaster says “possibility of war with NOKO increases every day.” 11/28 – South Korea’s Joint Chiefs of Staff verified that North Korea fired a ballistic missile that landed in the Sea of Japan. SOKO Olympics begin Friday 2/2018 thru Sunday 2/25. 11/20 – Pres. Trump announced the U.S. designated NOKO as a state sponsor of terrorism. Warns NOKO that “nuclearization puts its regime in grave danger & increases the peril it faces.” |
| ELEVATED “Iranian Protests,” Trumponomics and Beltway Beginning to Function |
1/02 – Highly diverse Iranian protests/civil unrest over economic conditions and political corruption continue for 5th day as President Rouhani warns of an immediate response by the Revolutionary Guards. Worst since 2009. Spread from Mashad to Tehran and 10 other major cities. Authorities warn the death penalty can be enforced for “waging war against God!” Over 20 dead; nearly 500 arrested. U.S. & Britain quick with calls for Iran to address issues raised by protestors. Supreme Leader Ayatollah Ali Khamenei blames “enemies of Iran” and Trump of instigating riots. No impact on oil production……..yet! Important to note that Iran, Syria & Russia stand together on one side with the U.S. KAS and Israel on the other. Syria lays blame on U.S. & Israel. Watch these developments carefully. Executions in Iran will bring civil unrest and ultimately war.12/22 – Pres. Trump signed the $1.5 trillion Tax Reform Bill into law as promised before Christmas in one of the GOP’s single greatest legislative victories.
12/21 – The UN General Assembly voted 128-9 (93.4%) with 35 abstains, condemning Pres. Trump’s 12/06 recognition of Jerusalem as Israel’s capital. 12/19 – Yemeni rockets launched at the royal palace in Riyadh intercepted by Saudi forces. Iranian-backed rebels now targeting population and power centers in Saudi Arabia enough to call an act of war between KAS and Iran. |
| CAUTION “Russia, Europe, U.K. & Terror” |
12/27 – Enjoying an 82%+ Russian approval rating, Vladimir Putin announced he will seek a 4th term as President. Serving out a 4th 6-year term would mean 24 years at the top including P.M. posts. Only Stalin ruled longer (29 years). Putin moved the 2018 election date to 3/18 – the 4th anniversary of Russia’s annexation of Crimea. Putin’s lone opponent Alexey Navalny called for a day of protest on January 28th. People will be watching Navalny in more ways than one.1/01 – Germany’s Angela Merkel in the midst of worst crisis of her 12yr chancellorship following 11/20 collapse of the “Jamaica Coalition.” Must convince socialist SPD party to join her center-right CDU party. Preliminary talks scheduled for Jan. 3rd with exploratory talks from the 7th-12th. Minority gov’t is an option lest Merkel face new elections. Sources of tension are immigration, taxation & the environment. Right wing has seat in decision-making and wants new elections.
1/01 – UK Parliament votes 309-305 requiring separate Act before BREXIT can be implemented dealing PM Theresa May a major setback in negotiations on the EU divorce bill. The U.K. is targeting an “implementation period” of March and completion by October 2018. U.K. withdrawal from the EU takes place in 3/2019. May began 2017 with a parliamentary majority, led in polls and owned the Conservative party; now, however, Democratic unionists are governing, tension persists in her own party as PM May readies to let go of as many as 5 of her cabinet ministers. January 2018 Terror Events and Casualties: 3 terrorist attacks; 2 dead; 9 wounded. Final December 2017 Terror Events and Casualties: 93 terrorist attacks; 430 dead; 733wounded. U.S. trade protectionism contrarian to the world coming together on trade. Long term impact? |
| MODERATE “China” & Fractured EU? |
12/22 – Three Catalonian pro-independence (secessionist) parties won snap elections called for by Spanish PM Rajoy who invoked never before used laws to oust the regional gov’t. & parliament hoping to reunify Spain. However, the Republican Left (32), Together for Catalonia (34) and Popular Unity Candidacy (4) parties now control a majority 70 seats in the 135-seat Parliament Over 3,000 companies and banks moved their HQ from Catalonia. Uncertainty and lack of confidence may well stymie Spain’s recovery from the financial crisis. The new parliament is set to convene on January 17th. Disruptions have cost the region over €1b.1/02 – Ceremonial President Sergio Mattarella dissolved parliament to pave the way for the upcoming March 4th elections. 5-Star Populist Party leader Luigi Di Maio said he would vote for an ITALEXIT if EU discussions fail. Italians are resistant to the EU’s stringent austerity measures. 5-Star holds a lead in polls. Unemployment is 11%; youth joblessness is 35%. Italy is the EU’s 3rd largest economy and has the world’s 3rd highest debt-to-GDP ratio at 132.5%. It is the EU’s biggest economic risk.
China hard landing: rising corporate debt & slower GDP growth are OECD and IMF concerns. Debt is 250% of GDP. 6% GDP in 2018 will be difficult. Cybercrime, ransomware, viruses & hacking. |
| MARGINAL “2018 US Recession?” |
12/13 – FOMC raises rates 0.25% recognizes prolonged inflation miss that is globally low. Sees faster 2018 growth and strong labor market. Economic activity and investment picked up. Low odds of a recession. Concerned about debt. Asset prices characterized as being “elevated.” |
Key FOMC Dates for 2018
I thought this might be a helpful and handy table of this year’s key U.S. Monetary Policy meetings and dates.
| FOMC Minutes | Beige Book | FOMC Meetings | Chairman’s Press Conference |
| January 3, 2018 | January 17, 2018 | Jan. 30-31, 2018 | |
| February 21 | March 7 | March 20-21 | March 21 |
| April 11 | April 18 | May 1-2 | |
| May 23 | May 30 | June 12-13 | June 13 |
| July 5 | July 18 | July 31 – Aug. 1 | |
| August 22 | September 12 | September 25-26 | September 26 |
| October 17 | October 24 | November 7-8 | |
| November 28 | December 5 | December 18-19 | December 19 |
| January 9, 2019 | January 16, 2019 | January 29-30, 2019 |
Hawks vs. Doves: A Look at the FOMC Voting Line-up for 2018 from 2017
The 2018 voting FOMC Regional President’s will consist of 1 dove (Dudley/retiring in 2018), 3 hawks (Barkin, Mester and Williams) and 1 neutral voter (Bostic). Last year (2017) consisted of 4 doves (Dudley, Evans, Harker and Kashkari) and only 1 hawk (Kaplan).
The Board of Governors will also be more hawkish in 2018 than 2017. Fed Gov. Powell (neutral) is expected to replace Fed Chair Yellen (dove) as Fed Chairman in January. Fed Gov. Quarles (hawkish lean) joined the Board in October. Marvin Goodfriend (hawkish lean) was nominated to be a Fed Governor by Pres. Trump in November but to date has not been confirmed by the Senate. During 2017 Vice Chair Fischer (hawkish lean) and Fed Gov. Tarullo (dove) left the Board of Governors. Fed Gov. Brainard (dove) remains on the Board. 2018 will start with 3 open Governor seats (Goodfriend’s seat is 1 of the 3) and 2017 started with 2.
Summary: In 2018 out of the 9 voting members (currently 3 open Fed Governor seats) there will be 3 doves, 4hawks and 2 neutral voters. Last year (2017) there were 7 doves, 2 hawks and 1 neutral voters. The details are below:
| New Voters in 2018 | Dove/Hawk |
| Randal Quarles (Governor) | Hawkish Lean |
| Thomas Barkin (Richmond) | Hawk |
| Raphael Bostic (Atlanta) | Neutral |
| Loretta Mester (Cleveland) | Hawk |
| John Williams (San Fran) | Hawkish Lean |
| 2017 Voters Not Voting in 2018 |
Dove/Hawk |
| Stanley Fischer (Vice-Chair) | Hawkish Lean (retired) |
| Daniel Tarullo (Governor) | Dove (retired) |
| Charles Evans (Chicago) | Dove |
| Patrick Harker (Philadelphia) | Dovish Lean |
| Robert Kaplan (Dallas) | Hawkish Lean |
| Neel Kashkari (Minneapolis) | Very Dovish |
2018 Voting Line-Up:
- Doves (3): Yellen, Brainard & Dudley
- Hawks (4): Quarles, Barkin, Mester & Williams
- Neutral (2): Powell & Bostic
Other:
- Fed Gov. Powell expected to replace Fed Chair Yellen in January.
- Fed Chair Yellen will retire once Fed Gov. Powell is confirmed as the Fed Chair.
- NY Fed Pres. Dudley announced he will retire in mid-2018.
- Marvin Goodfriend has been nominated to the Fed Board but has not yet been confirmed.
-Tony Farren
Have a great evening!
Ron Quigley, Managing Director / Head of Fixed Income Syndicate
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
…..and here’s another look at last week’s day-by-day re-cap of key primary market driver averages for IG Corporates only followed by the prior six week’s averages:
| KEY IG CORPORATE NEW ISSUE DRIVERS |
MON. 12/25 |
TUES. 12/26 |
WED. 12/27 |
Th. 12/28 |
FRI. 12/29 |
AVERAGES WEEK 12/25 |
AVERAGES WEEK 12/18 |
AVERAGES WEEK 12/11 |
AVERAGES WEEK 12/04 |
AVERAGES WEEK 11/27 |
AVERAGES WEEK 11/20 |
| New Issue Concessions | N/A | N/A | N/A | N/A | N/A | N/A | N/A | <1.46> bps | 1.62 bps | 0.51 bps | 0.50 bps |
| Oversubscription Rates | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 4.64x | 3.18x | 3.31x | 3.29x |
| Tenors | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 11.63 yrs | 10.69 yrs | 11.43 yrs | 7.41 yrs |
| Tranche Sizes | N/A | N/A | N/A | N/A | N/A | N/A | N/A | $398mm | $576mm | $648mm | $550mm |
| Avg. Spd. Compression IPTs to Launch |
N/A | N/A | N/A | N/A | N/A | N/A | N/A | <18.18> bps | <16.34> bps | <17.60> bps | <18.94> bps |
New Issues Priced
Above is the opening extract from Quigley’s Corner aka “QC” Tuesday January 02 2018 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest minority broker-dealer owned and operated by Service-Disabled Veterans.
Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, the QC is one of three distinctive market comment pieces produced by Mischler Financial Group.The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate debt new issuance and secondary market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.
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*Sources: Bank of America/Merrill Lynch, Bloomberg, Bond Radar, Dow Jones Newswire, IFR, Informa Global Markets, Internal Mischler, LCDNews, Market News International, Prospect News, Standard & Poor’s Ratings Services, S, Thomson Reuters and of course, a career of sources, contacts, movers and shakers from syndicate desks to accounts; from issuers to originators; from academicians to heads of research, and a host of financial journalists, et al.
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