Corporate Bond Issuers Return to IG Dollar Market; Toyota Drives DCM
July 10, 2018   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 07.10.18 – Corporate Bond Issuers Return to IG Dollar Market; Toyota Drives DCM

 

Investment Grade Corporate Bond New Issue Re-Cap

Today’s IG Primary & Secondary Market Talking Points

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

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

New IG Corporate Bond Issues Priced

Indexes and New Issue Volume              

Global Market Recap

2018 Lipper Report/Fund Flows – Week ending July 4th

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

 

Below is the opening extract from Quigley’s Corner aka “QC”  Tuesday,  July 10, 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 primary 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: rquigley@mischlerfinancial.com or via phone 203.276.6646 

Investment Grade New Issue Re-Cap

Today the IG dollar Corporate primary market finally awoke. It awoke not from a slumber but rather from a historic streak of sluggishness when considering 10 of the last 12 sessions produced an anemic $3.527b in total volume floated by US corporate bond issuers.  Today’s IG dollar DCM hosted 4 issuers across 7 tranches totalling $5.075b.  The SSA space added 2 issuers and 4 tranches for $7.50b bringing the all-in IG day totals to 6 issuers, 11 tranches and $12.575b. The all-in IG dollar pipeline saw three issuers clear trades today  – Toyota Motor Corp., EIB and JBIC while adding Nonghyup Bank to the forward schedule.  As a generalization, today’s prints were flat to tighter at the break conveying stability and attractive as opposed to aggressive pricing tactics and in line with IG credit spreads coming in the last couple of sessions – a sign of reassurance. We all know too well that the past two weeks’ issuance silence has been deafening as big FIGs lurk on the horizon to provide feed into voracious investor appetite for a new high-quality credit product.

 

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

 

  • The IG Corporate WTD total is 28.07% of this week’s syndicate midpoint average forecast or $5.075b vs. $18.08b.
  • MTD we’ve priced 6.22% of the syndicate forecast for June IG Corporate new issuance or $5.075b vs. $81.54b.
  • There are now 20 issuers in the IG credit pipeline.

                                  

Today’s IG Primary & Secondary Market Talking Points

 

  • PacifiCorp upsized today’s 30.5-year FMB new issue to $600mm from $500mm at the launch after having skipped guidance.
  • The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 7 IG Corporate-only new issues was <11.94> bps.
  • BAML’s IG Master Index tightened 1 bp to +127 vs. +128. (It’s post-Crisis low is +90 set on 2/01).
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 2 bps to +120 vs. 1.22. (1.24 represents the high on 6/04; 0.85 is its post-Crisis low set on 1/30).
  • Standard & Poor’s Investment Grade Composite Spread tightened 3 bps to +159 vs. +162. (+125 represents its post-Crisis low set 2/02).
  • Investment grade corporate bond trading posted a final Trace count of $18.8b on Monday versus $7.6b on Friday and $11.6b the previous Monday.
  • The 10-DMA stands at $15.6b.

 

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

 

IG Corporate New Issuance This Week
7/09-7/13
vs. Current
WTD – $5.075b
July 2018 vs. Current
MTD – $5.075b
Low-End Avg. $16.84b 30.14% $81.04b 6.26%
Midpoint Avg. $18.08b 28.07% $81.54b 6.22%
High-End Avg. $19.32b 26.27% $82.04b 6.16%
The High $10b 50.75% $60b 8.46%
The Low $30b 16.92% $100b 5.075%

 

 

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

 

Here’s a review of this week’s five key primary market driver averages for IG Corporates only through Monday’s session followed by the averages over the prior six weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
7/09
AVERAGES
WEEK 7/02
AVERAGES
WEEK 6/25
AVERAGES
WEEK 6/18
AVERAGES
WEEK 6/11
AVERAGES
WEEK 6/04
AVERAGES
WEEK 5/28
New Issue Concessions N/A No Issuance 9.87 bps +7.50 bps +4.02 bps +6.31 bps +9.00 bps
Oversubscription Rates N/A No Issuance 2.03x 2.59x 2.89x 2.70x 2.73x
Tenors N/A No Issuance 12.58 yrs 11.08 yrs 11.10 yrs 9.25 yrs 9.69 yrs
Tranche Sizes N/A No Issuance $504mm $1,134mm $724mm $623mm $467mm
Avg. Spd. Compression
IPTs to Launch
N/A No Issuance <6.58> bps <13.11> bps <13.76> bps <13.80> bps <8.23> bps

 

New Issues Priced

Today’s recap of visitors to our IG dollar Corporate and SSA DCM:

For ratings I use the better two of Moody’s, S&P or Fitch.

 

IG

                     Issuer                    Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
Bank of Montreal A1/AA- FRN 7/13/2020 1,125 3mL+equiv 3mL+equiv 3mL+34 3mL+34 BAML/BMO/GS/MS/UBS
Bank of Montreal A1/AA- 3.10% 7/13/2020 1,000 +70-75/+72.5a +60a (+/-2) +58 +58 BAML/BMO/GS/MS/UBS
National Life Insurance Company A2/A+ 5.25% 50nc30
7/19/2068
350 +225a N/A 5.25% +228.4
Back-end:
3mL+331.4
CS/JEFF
PacifiCorp A1/A+ 4.125% 1/15/2049 600 +low 130s
+132.5a
+120a (+/-3) +117 +117 MIZ/MUFG/PNC/SCOT
SMBC (a) + 2 (p)
Toyota Motor Corp. Aa3/AA- 3.183% 7/20/2021 750 +60-65/+62.5a +52a (+/-2) +50 +50 BAML/CITI/JPM
Toyota Motor Corp. Aa3/AA- 3.419% 7/20/2023 750 +75-80/+77.5a +67a (+/-2) +65 +65 BAML/CITI/JPM
Toyota Motor Corp. Aa3/AA- 3.669% 7/20/2028 500 +95-100/+97.5a +82a (+/-2) +80 +80 BAML/CITI/JPM

               

SSA

                     Issuer                    Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
EIB Aaa/AAA 2.875% 8/15/2023 4,000 MS +8a MS +7a MS +7 +21.65 DB/JPM/TD
JBIC A1/A+ 3.125% 7/20/2021 1,000 MS +28a MS +26a MS +24 +45.4 BAML/MIZ/NOM
JBIC A1/A+ 3.25% 7/20/2023 1,500 MS +40a MS +38a MS +35 +50 BAML/MIZ/NOM
JBIC A1/A+ 3.25% 7/20/2028 1,000 MS +43a MS +43a MS +42 +50.1 BAML/MIZ/NOM

 

Indexes and New Issue Volume              

Countable IG volume includes maturities of 18-months and out and IG-rated Preferreds.

*Denotes new high or tight.

                                                                                             

Index Open Current Change  
IG30 62.156 62.294 0.138
VIX 12.69 12.64 <0.05>
CT10 2.857% 2.851% <0.006>
S&P 2,784 2,793 9  
DOW 24,776 24,919 143
Nasdaq 7,756 7,759 3
OIL 73.85 74.21 0.36  
GOLD 1,257 1,255 <2>  
 

USD

 

IG Corporates

 

USD

 

Total (IG + SSA)

DAY: $5.075 bn DAY: $12.575 bn
WTD: $5.075 bn WTD: $12.575 bn
MTD: $5.075 bn MTD: $12.575 bn
YTD: $700.738 bn YTD: $873.353 bn

 

Global Market Recap

 

  • USTs: curve flattened & found support at 200 DMA; poor auction until 5pm when CT10 yields declined on news of $200b in add’l tariffs on China.
  • Overseas 10-year: Core EU and UK sold; Peripherals bought along with Aust. & NZ.
  • SOFR: -0.04 to 1.89 vs. 1.93.
  • 3mth Libor: +0.002 to 2.333 vs. 2.331.
  • Overseas Stocks: Global equity rally continued.
  • Currencies: DXY Index +0.058 to 94.128 vs. 94.07.
  • CDX HY: +1.768 to 340.142 vs. 338.374.
  • CDX EM: +0.376 to 171.462 vs. 171.086.

*Index levels are as of 5:00PM ET today.

2018 Lipper Report/Fund Flows – Week ending July 4th        

     

  • For the week ended July 4th, Lipper U.S. Fund Flows reported a net inflow of $170.466m into Corporate Investment Grade Funds (2018 YTD net inflow of $49.308b) and a net outflow of $1.729b from High Yield Funds (2018 YTD net outflow of $20.329b).

 

  • Over the same period, Lipper reported a net outflow of $184.181m into Loan Participation Funds (2018 YTD net inflow of $8.367b).

 

  • Emerging Market debt funds reported a net outflow of $288.350m (2018 YTD inflow of $725.650m).

 

IG Credit Spreads by Rating

The 10-day IG spread performance vs. the T10 across the ratings spectrum and how IG compared versus high yield:

Spreads across the four IG asset classes are 29.25 bps wider versus their new post-Crisis lows!

*Denotes new post-Crisis low!

*Denotes tied post-Crisis low!

 

ASSET CLASS 7/07 7/06 7/05 7/04 7/03 7/02 6/29 6/28 6/27 6/26 1-Day Change 10-Day Trend PC
low
IG Avg. 127 128 129 130 130 130 130 130 129 129 <1> <2> 90 (2/01/18)
“AAA” 65 66 66 67 67 68 68 68 68 68 <1> <3> 48 (2/02/18)
“AA” 76 77 77 78 78 78 78 78 78 78 <1> <2> 51 (2/02/18)
“A” 102 103 104 105 105 105 105 105 105 104 <1> <2> 71 (2/01/18)
“BBB” 159 161 161 163 163 163 163 162 162 161 <2> <2> 115 (2/02/18)
IG vs. HY 238 246 245 247 247 248 241 234 227 219 <8> +19 222 (5/15/18)

 

IG Credit Spreads by Industry

…….and a snapshot of the major investment grade sector credit spreads for the past ten sessions:

Spreads across the major industry sectors are an average 36.84 bps wider versus their post-Crisis lows!
*Denotes new post-Crisis low!
*Denotes tied post-Crisis low!

INDUSTRY 7/07 7/06 7/05 7/04 7/03 7/02 6/29 6/28 6/27 6/26 1-Day Change 10-Day Trend PC
low
Automotive 114 115 116 116 116 116 116 116 116 114 <1> 0 67
Banking 115 116 117 118 118 118 118 118 118 117 <1> <2> 75 (2/02/18)
Basic Industry 157 160 160 161 161 160 160 161 162 160 <3> <3> 110 (2/02/2018)
Cap Goods 103 104 104 105 105 105 105 103 103 103 <1> 0 75 (1/12/18)
Cons. Prod. 114 116 116 118 118 118 118 118 118 117 <2> <3> 78 (2/01/18)
Energy 159 161 162 164 164 164 164 163 163 163 <2> <4> 115 (2/02/18)
Financials 133 134 134 134 134 134 133 132 132 131 <1> +2 97
Healthcare 110 112 112 113 113 113 113 112 112 112 <2> <2> 77 (2/02/2018)
Industrials 130 131 132 133 133 134 133 133 132 132 <1> <2> 93 (2/02/18)
Insurance 139 140 140 141 141 140 140 139 139 137 <1> +2 100 (2/02/18)
Leisure 120 121 121 121 121 121 121 138 138 136 <1> <16> 98 (2/01/18)
Media 166 168 170 170 170 171 171 171 170 169 <2> <3> 113
Real Estate 133 134 134 135 135 135 134 134 134 134 <1> <1> 100 (2/01/18)
Retail 115 117 117 119 119 120 120 122 120 120 <2> <5> 82 (2/02/18)
Services 117 118 118 118 118 118 118 118 117 117 <1> 0 94  (1/31/18)
Technology 95 97 98 99 99 100 100 99 98 98 <2> <3> 71 (2/02/18)
Telecom 170 173 174 176 176 177 177 176 174 173 <3> <3> 122
Transportation 133 134 134 135 135 135 135 136 136 135 <1> <2> 91 (2/02/2018)
Utility 131 132 133 133 133 133 133 132 132 131 <1> 0 96 (2/02/2018)

                                   

New Issue Pipeline

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

 

  • Nonghyup Bank (A1/A+) asked joint leads Bank of America/Merrill Lynch, Credit Agricole CIB, HSBC, Societe Generale and UBS to arrange fixed income investor meetings in the U.S., Europe and Asia beginning on Monday, July 16th in preparation for a dollar-denominated 144a/REGS transaction that could soon follow their conclusion.
  • South Korea’s Pohang Iron and Steel Company or “POSCO” (Baa1/BBB+) asked joint leads Bank of America/Merrill Lynch, BNP Paribas, HSBC and Standard Chartered to arrange fixed income meetings in the U.S., Europe and Asia beginning on Monday, July 9th in preparation for a dollar-denominated 144a/REGS transaction that could soon follow their conclusion.
  • McLaren Health Care (Aa3/AA-) originally announced it would price a new $300mm 3(a)4 Exempt 40-year taxable bond issue, Series 2018A due 5/15/2058 thru sole lead J.P. Morgan on Tuesday, June 19th  but that deal was postponed due to market conditions until Thursday, June 21st when it resurfaced on the tapes at 9:30am ET.  The deal carried IPTs in the T+130 “area” and was noted as “expected to price!” (6/21).  However, it did not price and no guidance was ever released.
  • Korea East-West Power Co. Ltd. (Aa2/AA) asked joint leads Bank of America/Merrill Lynch, BNP Paribas, Citigroup, Credit Agricole CIB and Societe Generale CIB to arrange fixed income investor meetings in the U.S., Europe and Asia beginning on Thursday, June 28th in preparation for a dollar-denominated 144a/REGS transaction that could soon follow their conclusion.
  • Thomson Reuters Corp. (Baa2/BBB+) filed a debt shelf for up to $3b of Unsecured Bonds on Tuesday, June 19th.
  • Industrial Bank of Korea (Aa2/AA-) asked joint leads Citigroup, Commerzbank, Credit Agricole CIB and HSBC to arrange fixed income investor meetings in the U.S., Europe and Asia that began on Monday, June 18th in preparation for a dollar-denominated 144a/REGS Social Bond transaction that could soon follow their conclusion.
  • Hyundai Capital Services Inc. (Baa1/A-) asked joint leads Citigroup, Credit Suisse, Mizuho and UBS to arrange fixed income investor meetings in the U.S., Europe and Asia that began on Wednesday, June 20th after which a deal could soon follow.
  • Korea Hydro and Nuclear Power Co., Ltd. (Aa2/AA) asked joint leads BNP Paribas, Citigroup, HSBC, J.P. Morgan, KDB and UBS to arrange fixed income investor meetings in the U.S., Europe, Asia and the Middle East that began on Friday, June 22nd in preparation for a dollar-denominated 144a/REGS Green Bond transaction that could soon follow their conclusion.
  • Northern Natural Gas Co. (A2/A) a subsidiary of Berkshire Hathaway Energy Company, asked joint leads Barclays, J.P. Morgan, KeyBanc and US Bancorp to arrange fixed income investor calls that began on Thursday, June 14th from 9:00am to 5:00pm ET. BARC coordinated.
  • Hydro One (A3/A) filed a shelf registration to offer $3bn in debt securities for its acquisition of Avista Corp. (A2/A-)
  • The Hershey Company (A1/A) filed an S-3ASR automatic shelf registration that covers debt securities on Thursday, May 31st.
  • Qualcomm Inc. (A1/A) filed an S-3ASR mixed shelf registration on Monday, May 21st that includes debt, preferred, depository shares, units and warrants.
  • Allegian U.S. Holding Co. (Baa3/BBB) filed an S-3ASR automatic shelf registration on Friday, May, 18th that includes debt, shares, preferred, depository shares, units and warrants.
  • Empresas CMPC S.A. (Baa3/BBB) asked joint leads J.P. Morgan, Santander and Scotiabank to arrange fixed income investor meetings that took place on Friday, May 11th in preparation for a dollar-denominated debt transaction that could soon follow their conclusion.
  • Eni S.p.A. (A3/A-) had Global Coordinators and joint book runners Citigroup, Goldman Sachs and J.P. Morgan arrange fixed income investor meetings that began with one-on-ones in Boston on Monday, May 14th and continued on the 15th in New York that concluded with calls on Wednesday and Thursday the 16th and 17th.  GS coordinated the meetings with JPM handling the calls in preparation for a dollar-denominated 144a/REGS transaction that could soon follow their conclusion.
  • Telefonica Emisiones SAU (Baa3/BBB) filed an automatic F-3ASR covering debt securities on Friday, April 20th.
  • Transportadora de Gas Internacional S.A. E.S.P. (Baa3/BBB-) asked joint leads HSBC and J.P. Morgan to arrange fixed income investor meetings in the U.S., Europe and Santiago, Chile that took place on Thursday, April 19th in preparation for a dollar-denominated 144a/REGS 10-year Notes transaction that could soon follow their conclusion. Additional meetings were be held in L.A. and London, New York and Boston followed by calls with Chilean accounts that wrapped up on 4/23.
  • La Caisse de Dépôt et Placement du Québec (Aaa/AAA) asked joint leads BNP Paribas, Goldman Sachs, HSBC and Toronto Dominion to arrange fixed income investor meetings that began the week of Monday, April 23rd. A deal could soon follow their conclusion.

o   Korea Resources (Aa2/A+) asked Bank of America/Merrill Lynch, BNP Paribas, Credit Agricole CIB and HSBC to coordinate a roadshow that began in March in preparation for a dollar-denominated 144a/REGS transaction that could soon follow its conclusion.

o   Rio Tinto (A3/A) asked J. P. Morgan to arrange one-on-one investor meetings that began on March 5th in N.J. & N.Y. and concluded in L.A. on March 9th.

 

M&A Pipeline Highlights – $447.62 Billion in Cumulative Enterprise Value!

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

 

  • The Walt Disney Co.’s (A2/A+) increased $71.3b offer to acquire 21st Century Fox (Baa1/BBB+) won U.S. antitrust approval on Wednesday June 27th. It sets back Comcast’s pursuits of the media company though it does have time to respond to the Disney offer. In its original offer to purchase 21CF, Disney’s Chairman-CEO Bob Iger agreed to extend his contract thru 2021 to oversee the integration. Comcast Corp. (Baa2/BBB) offered $65b or 100% of the outstanding shares or $35 per share in cash to acquire the businesses that 21st Century Fox (Baa1/BBB+) earlier agreed to sell to The Walt Disney Company or a 19% premium to the Disney offer.
  • Conagra Brands Inc. (Baa2/BBB) announced that it plans to acquire Pinnacle Foods (B2/BB-) in a cash-and-stock transaction valued at $8.1bn and including debt totals $10.9b. Conagra is expected to finance the transaction with approximately $7.3b of new debt, cash and equity totaling $10.9b and secured $9b in fully committed bridge financing from affiliates of Goldman Sachs Group, Inc.
  • NextEra Energy Inc. (Baa2/BBB) announced that it will acquire three assets from Southern Company (Baa2/BBB+) – Gulf Power, Florida City Gas and two natural gas plants in a transaction valued at $6.48 including debt.  NEE is expected to fund the transaction through the issuance of new debt.
  • Takeda Pharmaceutical agreed to purchase Irish drug maker Shire PLC for $62b.  The new company represents the single largest international acquisition by a Japanese company.  Takeda agreed to pay $66.21 for Shire’s 913.6 million shares.  It would represent the 8th largest drug maker in the world having cumulative sales of $30b.
  • International Flavor & Fragrances (Baa1/BBB+) announced it will combine its operations with Frutarom in a what amounts to a $7.1b
  • Comcast (A3/A-) formalized its $31b offer o purchase British satellite broadcaster Sky (Baa2/BBB) which would give the American cable company a major footprint in Europe while adding ~23 million customers. The bid is ~4.2b more than that offered by Rupert Murdoch’s 21st Century Fox.
  • CenterPoint Energy Inc. (Baa1/A-/BBB) agreed to purchase Vectren Corp., (A2/A-) for $5.98b. Vectren is a Fortune 1,000 Midwest energy holding company that distributes natural gas to approximately one million business and residential customers. Vectren also distributes electricity 1o ~140k customers. The company is head quartered in Evansville, Indiana. The transaction will be funded with debt and equity and backed by a letter of commitment from both Goldman Sachs and Morgan Stanley working on a $5b bridge loan. GS is CNP’s advisor with BAML serving as Vectren’s advisor.
  • On April 19th Proctor & Gamble (Aa3/AA-) announced it agreed to purchase the consumer health business of German chemical group Merck (A1/AA) for $4.2b.
  • Health insurer Cigna Corp. (Baa1/A) announced that it agreed to purchase Express Scripts (Baa2/BBB+) for $52b as the health care industry continues to see major consolidations.
  • ChemChina agreed to purchase Swiss agrichemical company Syngenta for $47.9 billion on Wednesday, September 13th.  Syngenta is the largest international takeover thus far in 2017 and is the largest foreign acquisition by a Chinese company. The company postponed its $7 billion bond sale with expectations for issuance over the next few months. Despite its $4.95b REG S offering on March 7th, word is that they have more to do.  
  • Qualcomm Inc. (A1/A) agreed to pay $110 per share for NXP Semiconductors NV representing an 11% premium versus its close on Wednesday, February 14th in a transaction valued at $47b.  The deal would enable Qualcomm to diversify away from a dependence on smartphones.
  • Archer-Daniels Midland (A2/A) is reportedly in advanced talks to acquire Bunge (Baa2/BBB) for ~A$95 per share valuing a potential enterprise value of $18.3b. Regulatory and anti-trust hurdles are expected.
  • WestRock (Baa2/BBB) agreed to purchase Kapstone Paper and Packaging (NR/NR) for $35 per share or ~$3.5b. The deal’s enterprise value is ~$4.9b including $1.36b of assumed debt. The strategic purchase will expand WestRock’s footprint in the western U.S.
  • French pharma company Sanofi (A1/AA) agreed to buy Waltham, Massachusetts-based Bioverativ for $105 per share or $11.6b in the former’s largest acquisition in 7 years to fortify its rare disease treatments.
  • New Jersey-based biotech giant Celgene Corp. (Baa2/BBB+) announced it agreed to purchase Seattle-based Juno Therapeutics Inc. (NR/NR) for $87 per share or $9b.  Juno would give Celgene added treatments that genetically reprogram patients’ immune cells to battle cancer.
  • American International Group, Inc. (“AIG”) (Baa1/BBB+) announced it entered into a definitive agreement to acquire all outstanding shares of Validus Holdings, Inc. (“VR”) (Baa1/BBB+) a leading provider of reinsurance, primary issuance and asset management services.  Validus common shares will receive cash consideration of $68.00 per share valuing the transaction at $5.56b funded by cash on hand.
  • Dominion Energy (Baa2/BBB) and SCANA Corporation (Baa3/BBB-) announced an agreement for the two companies to combine in a ~$14.6 billion stock-for-stock merger. SCANA shareholders will receive 0.669 shares of Dominion Energy common stock for each share of SCANA common stock after which SCANA would become a wholly-owned subsidiary of Dominion Energy.
  • Northrup Grumman (Baa2/BBB+) agreed to acquire Orbital ATK (Ba3/BB+) for $7.8b. Secondary Northrup Grumman spreads widened on the news given Orbital ATK’s HY rating.  The acquisition is expected to be funded with $8b+ in debt.
  • United Technologies (A3/A-) is slated to buy Rockwell Collins (Baa2/BBB) for $140 per share in a cash and stock acquisition valued at over $30b including the assumption of $7b of “COL” net debt.

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
NFIB Small Business Optimism June 106.9 107.2 107.8 —-
JOLTS Job Openings May 6620 6638 6698 6840

 

Rates Trading Lab

Front end of the curve was burdened by the weight of supply today, and that supply received a chilly reception as the first auction this week was not well-received. The 3yr tailed 0.6bp and didn’t attract many end-user buyers. The 2.51 bid/cover was well below June’s 2.83 and the 2.91 average and the lowest since January 2009. The 39.6% indirect bid was the smallest since 2014, well off the prior 51.4% and 52.4% average. That left primary dealers holding the bag as they were awarded 51.3% vs. 39.4% last month and also the highest since 2014. It was actually the 2yr note which bore the brunt of selling, however as 2y/10y hit a new cycle flat of 28bp. Aside from that the NFIB small business optimism survey and JOLTS job opening reports came in a bit stronger than expected.

Thoughts:

Long bond did indeed find support today at the 200day MA of 2.973%. However, most of the market traded very heavily all day. Market indifference reigns as to any geo-political consequences that may emanate from the NATO meetings. I realize it’s is not a G7 meeting, but the President does seem to setting a more confrontational tone with tweets like “[m]any countries in NATO, which we are expected to defend, are not only short of their current commitment of 2% (which is low), but are also delinquent for many years in payments that have not been made. Will they reimburse the U.S.?” Then there is trade policy, the rock in the markets’ shoes. Trying to gauge the impact of these on the markets is admittedly difficult, but I think it should at least continue to increase risk premia.

-Jim Levenson

 

*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, Stone & McCarthy Research, 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.

Quigley’s Corner 07.10.18 – Corporate Bond Issuers Return to IG Dollar Market; Toyota Drives DCM