Quigley’s Corner 05.16.18 – Financial Markets Rating Impact of Higher Interest Rates: Trading at the Corner of Wall Street & Hollywood Blvd.

Investment Grade New Issue Re-Cap – Wall Street & Hollywood; Reality & Illusion

Today’s IG Primary & Secondary Market Talking Points

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

Global Market Recap

The “QC” Geopolitical Risk Monitor

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

New Issues Priced

2018 Lipper Report/Fund Flows – Week ending May 9th

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline Highlights

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

Today the suddenly subdued IG dollar DCM hosted one $800mm two-part deal from Harley-Davidson Financial Services in the form of a 2-year FRN and a 3-year fixed rate senior unsecured transaction. In fact, the SSA space outperformed on the volume front thanks to Kommuninvest’s $1b 3-year bringing the all-in IG day total to 2 issuers, tranches and a mere $1.8b…………What gives?  Well, look at the CT10-year that closed out yesterday’s session yielding 3.07% and 3.10% today. U.S. interest rates are going up, though they’ve been tame thus far as they begin their trajectory.

In speaking with Mischler’s resident Treasury guru Tony Farren about the subject of rising rates today, the very first week of 2018 (Jan. 2-5) saw the 2yr (1.891%), 5yr (2.213%), 10yr (2.416%) and the 30yr (2.749%) all trading at their 2018 YTD low yields. Fast forward to today – both the 2yr (2.589%) and 5yr (2.941%) are at the highest yields since 2008; the 10yr (3.10%) is at its highest yield dating back to 2011 while the CT30yr (3.22%) came to within 1 bp of its YTD high which was the highest yield since 2015. The market IS and always has been ahead of the curve, while the Fed has ALWAYS and will forever be a market laggard. It’s the nature of the beast we call “the market.”  Rates are finding a new level and that level is HIGHER folks!

Things could certainly be changing especially after S.F. Fed Chief Williams’ comments yesterday in which he said he’s “very positive” on the domestic economic outlook and shared his view that we can sustain 3 to 4 rate hikes in 2018!  The statement has more impact than it typically would, especially considering that Mr Williams will soon upgrade to a much more powerful role as the NY Fed Chief. There is a large contingent of people and market participants who would like to see Fed-speak banned (other than post-FOMC Press Conferences and Q&A). Still, rates are going up folks. Just have a look at the emboldened U.S. dollar for evidence. Look at Emerging Markets, especially Argentina and Turkey. They are signals not only of their own domestic issues but also the rising rate environment.  Sprinkle on some powerful geopolitical risk factors like the bubbling Middle East, Iran vs. the unlikely Dynamic Duo that is quickly becoming Saudi Arabia and Israel, and Kim Jong-un’s recent comments threatening to un-schedule the June 12th denuclearization talks.  China, Italy, Washington dysfunction – they are all among the starring players in an endlessly rewritten historical epic scenario that beckons a script doctor’s skills to fill in the holes, add some character arcs and tie all the plots and subplots together to achieve a nice, neat denouement.  Guess what? That happy ending is not coming; after all, this is the reality, not illusion and we, readers are realists.  This is Wall Street, not Hollywood. At least I think and hope so.

So, the 3.095% CT10yr yield was the wake-up call that gave pause for today.  We are also running $7b shy of this week’s syndicate estimate, but tomorrow’s another day!

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 79.32% of this week’s syndicate midpoint average forecast or $26.905b vs. $33.92b.
  • MTD we’ve priced 64.28% of the syndicate forecast for April IG Corporate new issuance or $86.675b vs. $134.84b.
  • There are now 15 issuers in the IG credit pipeline.

Today’s IG Primary & Secondary Market Talking Points

  • The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s IG Corporate-only new issues was <15.00> bps.
  • BAML’s IG Master Index was unchanged at +114. (It’s post-Crisis low is +90 set on 2/01).
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to 1.09 vs. at 1.08.  (0.85 is its post-Crisis low set on 1/30).
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +145 vs. +146. (+125 represents its post-Crisis low set 2/02).
  • Investment grade corporate bond trading posted a final Trace count of $19.9b on Tuesday versus $16b on Monday and $17.4b the previous Tuesday.
  • The 10-DMA stands at $17.4b.

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

IG Corporate New Issuance This Week
vs. Current
WTD – $26.905b
May 2018 vs. Current
MTD – $86.675b
Low-End Avg. $32.52b 82.73% $133.64b 64.86%
Midpoint Avg. $33.92b 79.32% $134.84b 64.28%
High-End Avg. $35.32b 76.17% $136.04b 63.71%
The High $20b 134.53% $110b 78.80%
The Low $40b 67.26% $150b 57.78%

Global Market Recap

  • U.S. Treasuries – Small losses. 2yr reached its highest yield since 2008.
  • Overseas Bonds – JGB’s mixed. Bunds/Gilts better. Italy/Greece hit very hard.
  • SOFR – 1.79% from 1.70%.
  • 3mth Libor – 2.32563% from 2.32063%.
  • Stocks – Solid gains at 3pm with the NASDAQ leading the way.
  • Overseas Stocks – Asia closed down. Europe more green than red. Italy hit hard.
  • Economic – Mixed U.S. data with more good than bad.
  • Overseas Economic – Japan GDP was negative. EU, Germany and Italy CPI’s were tame.
  • Currencies – DXY Index traded at its YTD high and the Euro its YTD low.
  • Commodities – Small gains. Gold hit its YTD low. Gasoline reached its high since 2014.
  • CDX IG: -0.59 to 60.68
  • CDX HY: -2.45 to 338.22
  • CDX EM: -2.13 to 158.88
  • VIX: -1.19 to 13.44

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

-Tony Farren


The “QC” Geopolitical Risk Monitor

Above is the opening extract from Quigley’s Corner aka “QC” Wednesday, May 16, 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: rkarr@mischlerfinancial.com 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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