Investment Grade Debt: Widening Warning

Quigley’s Corner 04.30.18- Widening Warning Investment Grade Debt

Investment Grade New Issue Re-Cap – “Warning! Warning! Danger Will Robinson! Haggard IG Primary Markets!”

Today’s IG Primary & Secondary Market Talking Points : Daimler Finance Guidance: “at the number”

Syndicate IG Corporate-only Volume Estimates For This Week and April

Global Market Recap

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

QC Geopolitical Risk Monitor

New Issues Priced

Indexes and New Issue Volume              

Lipper Report/Fund Flows – Week ending April 25th

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

Well, despite the primary market respite given last Thursday’s light calendar (2 issues across 5 tranches) followed by a no-print Friday, the IG dollar DCM’s primary marketplace continued to struggle along.  Although today’s IG dollar DCM hosted 6 issuers across 13 tranches totalling $8.175b – with a quiet SSA space – all 7 of Daimler’s tranches were guided “at the number.” Somewhat more disconcerting was the fact that two issues – Indiana Michigan Power Co. (power) and Kansas City Southern (rail) – both launched at the widest side of guidance. That’s not a sector-specific event either! That’s atypical spread compression. It is concerning given the duration of syndicate price evolution mechanics across the past week. Additionally, most of today’s new issues broke an average of 2-3 bps wider………what’s more – the average concession across today’s 13 new issues was 4 bps.  That’s what I call trending in the wrong direction folks! Not encouraging as syndicate desks expect a much busier calendar beginning next week and a focused $135b month of May.

On a geopolitical note, just when Korean peninsula denuclearization negotiations are about to begin, Israeli President Benjamin Netanyahu revealed physical evidence today in the form of over 55,000 documents and 183 CDs taken from Iranian nuclear archives proving that Iran has been pursuing its nuclear ambitions in violation of the horrible treaty signed in 2015.  As Gilda Radner’s SNL character Rosanna Danna would say, “There’s always something… if it’s not one thing, it’s another.”

Having said that I will also point out that we crushed the syndicate midpoint estimate for April IG Corporate new issuance by $26.212b having closed out the month today with a total of $117.612b versus $91.40b estimates or 128.68%.

Here’s a look at the WTD and MTD IG Corporate new issue volume as measured against syndicate desk estimates:

• The IG Corporate WTD total is 31.52% of this week’s syndicate midpoint average forecast or $8.175b vs. $25.94b.
• MTD we’ve priced 128.68% of the syndicate forecast for April IG Corporate new issuance or $117.612b vs. $91.40b.
• There are now 9 issuers in the IG credit pipeline.

Today’s IG Primary & Secondary Market Talking Points

• Kansas City Southern upsized today’s 30-year Senior Notes new issue $500mm from $450mm at the launch although at the widest side of guidance.
• The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 13 IG Corporate-only new issues was <14.54> bps.
• BAML’s IG Master Index was unchanged at +112. (It’s post-Crisis low is +90 set on 2/01).
• Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +1.08.  (0.85 is its post-Crisis low set on 1/30).
• Standard & Poor’s Investment Grade Composite Spread was unchanged at +146. (+125 represents its post-Crisis low set 2/02).
• Investment grade corporate bond trading posted a final Trace count of $14.2b on Friday versus $22b on Thursday and $16.2b the previous Friday.
• The 10-DMA stands at $18.6b.

Syndicate IG Corporate-only Volume Estimates For This Week and April

Global Market Recap

• U.S. Treasuries – Better bid except 2yr. Supported by month end buying and Iran nuke news.
• Overseas Bonds – JGB’s closed. Bunds and Gilts better bid. Peripheral’s mostly red.
• SOFR – Unchanged at 1.72%.
• 3mth Libor – Set at 2.36294% from 2.35805%.
• Stocks – Started with gains but rolled over and traded poorly into the close.
• Overseas Stocks – HS strong rally. China/Japan closed. Europe closed with gains.
• Economic – PCE Deflator and PCE Core tame MoM but jumped higher YoY.
• Overseas Economic – German CPI was tame and Retail Sales were weak.
• Currencies – USD better bid vs. all of the Big 5.
• Commodities – Crude was under pressure and then rallied on the Iran/Israel news.
• CDX IG: +0.73 to 60.89
• CDX HY: +1.98 to 339.77
• CDX EM: +2.40 to 142.59
• VIX: +0.38 to 15.79

*CDX levels are as of 3:30PM ET today.

-Tony Farren

Have a great evening!
Ron Quigley

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

Above is the opening extract from Quigley’s Corner aka “QC”  Monday April 30 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.

To receive Quigley’s Corner, please email: [email protected] or via phone 203.276.6646

*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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