EU & US Closer to Resolving Trade Tariff Tit-for-Tat; Debt Capital Markets Comment
July 25, 2018   //   by Mischler MarComm Team   //   Debt Market Commentary, Recent Deals  

Quigley’s Corner 07.25.18 – EU & US Closer to Resolving Trade Tariff Tit-for-Tat

Investment Grade New Issue Re-Cap – Breaking News: Trump & Juncker Stymie Trade War Rhetoric

Today’s IG Primary & Secondary Market Talking Points – Mischler in the Selling Group for AT&T’s $25 par Global Notes Transaction

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 Issues Priced

Indexes and New Issue Volume              

Global Market Recap

Lipper Report/Fund Flows-Week of July 18

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline Highlights – $463.96 Billion in Cumulative Enterprise Value

Economic Data Releases

Rates Trading Lab

UST Resistance/Support Table

Tomorrow’s Calendar

The “QC” Geopolitical Risk Monitor

Below is the opening extract from Quigley’s Corner aka “QC”  Wednesday,  July 25, 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 

 

Breaking News: Trump & Juncker Stymie Trade War Rhetoric

us-eu trade trade tariff dispute resolution

Amidst global trade tariff fears, U.S. President Trump met with European Commission President Jean-Claude Juncker in Washington to deliver what will hopefully lead to a resolution to the simmering ‘trade tarrif war’ between the US and the EU. Trump said today’s meeting at the White House “marks a new phase of close friendship and close trade relations, global security and jointly fighting against global terrorism.” President Trump further stated, “The U.S. and EU represent $838bn in trade and 50%+ of global trade. The U.S. and EU enjoy a $1 trillion bilateral trade relationship which is the largest in the world.” Trump and Juncker purportedly agreed to work toward “zero” trade tariff schemes, “zero” non-tariff barriers, and “zero” subsidies on non-auto goods. To reduce barriers in trade, soybeans foremost among them, it was reported the EU will start “almost immediately” to buy “vast amounts” of soybeans, helping US Midwest farmers and “resulting in greater prosperity for both the U.S. and EU, while making trade more fair and reciprocal.” The EU’s Juncker purportedly agreed to import “much more” liquefied natural gas and the U.S. agreed to make it easier for the EU to do so. Both leaders are said to have agreed to launch a dialogue to trade barriers, bureaucratic obstacles and to slash costs. There remain negotiations going forward, specifically on auto tariffs- but they both are said to have agreed to work toward a rapid resolution.

Today the IG dollar DCM hosted 6 issuers across 7 tranches totaling $5.15b.  The SSA space was quiet.

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 59.73% of this week’s syndicate midpoint average forecast or $12.125b vs. $20.30b.
  • MTD we’ve priced 71.05% of the syndicate forecast for July IG Corporate new issuance or $57.936b vs. $81.54b.
  • There are now 15 issuers in the IG credit pipeline.                                 

Today’s IG Primary & Secondary Market Talking Points – Mischler in the Selling Group for AT&T’s $25 par Global Notes Transaction

 

  • Mischler Financial was honored to be a member of the Selling Group on today’s AT&T $25 par Global Notes transaction due 8/01/2067 (callable 8/01/2023). The deal from NYSE:ATT was upsized to $750mm from $250mm.
  • A notable rarity: Today’s Burlington Northern Santa Fe LLC 30-year Senior notes new issue was launched at T+112.5 which was 2.5bps tighter than the tightest side of +120 “area” (+/-5) Guidance.
  • The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 7 IG Corporate and Preferredonly new issues was <20.68> bps.
  • Not counting the Preferred and only counting the 6 IG Corporates, IPTs to the launch was <23.08>.
  • BAML’s IG Master Index tightened 1 bp to +120 vs. +121. (It’s post-Crisis low is +90 set on 2/01).
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 2 bps to 1.13 vs. 1.15. (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 was unchanged at +153. (+125 represents its post-Crisis low set 2/02).
  • Investment grade corporate bond trading posted a final Trace count of $21.4b on Tuesday versus $15.4b on Wednesday and $18.3b the previous Tuesday.
  • The 10-DMA stands at $16.9b.

 

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

 

IG Corporate New Issuance This Week
7/23-7/27
vs. Current
WTD – $12.125b
July 2018 vs. Current
MTD – $57.936b
Low-End Avg. $18.60b 65.19% $81.04b 71.49%
Midpoint Avg. $20.30b 59.73% $81.54b 71.05%
High-End Avg. $22.00b 55.11% $82.04b 70.62%
The High $10b 121.25% $60b 96.56%
The Low $30b 40.42% $100b 57.94%

 

Below please find a synopsis of everything Syndicate & Secondary as seen from the perch of Mischler Financial Group’s Investment Grade Capital Markets Desk.

 

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

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
7/23
TUES.
7/24
AVERAGES
WEEK 7/16
AVERAGES
WEEK 7/09
AVERAGES
WEEK 7/02
AVERAGES
WEEK 6/25
AVERAGES
WEEK 6/18
AVERAGES
WEEK 6/11
New Issue Concessions 2.64 bps 1.50 bps 3.90 bps 3.45 bps No Issuance 9.87 bps +7.50 bps +4.02 bps
Oversubscription Rates 3.32x 2.47x 2.33x 2.31x No Issuance 2.03x 2.59x 2.89x
Tenors 7.56 yrs 5.52 yrs 7.73 yrs 9.24 yrs No Issuance 8.99 yrs 11.08 yrs 11.10 yrs
Tranche Sizes $592mm $413mm $1,031mm $693mm No Issuance $504mm $1,134mm $724mm
Avg. Spd. Compression
IPTs to Launch
<15.39> bps <13.00> bps <13.79> bps <13.39> bps No Issuance <6.58> bps <13.11> bps <13.76> 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
AT&T Inc. Baa2/BBB 5.625% 8/01/2067 750 5.625%-5.75%
5.6875%a
5.625%  the # 5.625% $25 Pfd
Global Notes
BAML/MS/WFSJPM/RBC/UBS
Aviation Capital Group LLC A-/BBB+ FRN 7/30/2021 300 3mL+95-100
3mL+97.5a
+70a (+/-3) 3mL+67 3mL+67 BARC/BNPP/GS/JPM/MIZ
Aviation Capital Group LLC A-/BBB+ 4.125% 8/01/2025 500 +170a +150a (+/-5) +145 +145 BARC/BNPP/GS/JPM/MIZ
Burlington Northern
Santa Fe
A3/A+ 4.15% 12/15/2048 750 +135a +120a (+/-5) +112.5 +112.5 JPM/MS/WFS (a)
BAML/CITI/GS (p)
Nationwide Building Society Baa1/A 4.363% 6NC5 F-t-F
8/01/2024
1,000 +170a +160a (+/-5) +155 +155
Back-end:
3mL+139.2
BAML/BARC/CITI/JPM/
POSCO Baa1/BBB+ 4.00% 8/01/2023 500 +155a +130-135/+132.5a +130 +130 BAML/BNPP/HSBC/STAN
Temasek Financial (I) Ltd. Aaa/AAA 3.625% 8/01/2028 1,350 REV IPTs: +80a
+90-95/+92.5a
+75a (+/-3) +72 +72 BAML/CITI/HSBC/MS

               

Indexes and New Issue Volume              

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

*Denotes new high or low.

                                                                                             

Index Open Current Change
IG30 60.928 59.219 <1.709>
VIX 12.41 12.29 <0.12>
CT10 2.949% 2.975% 0.026
S&P 2,820 2,846 26  
DOW 25,241 25,414 173
Nasdaq 7,841 7,932 91
OIL 68.52 69.26 0.74  
GOLD 1,224.52 1,231.63 7.11  
 

USD

 

IG Corporates

 

USD

 

Total (IG + SSA)

DAY: $5.15 bn DAY: $5.15 bn
WTD: $12.125 bn WTD: $14.125 bn
MTD: $57.936 bn MTD: $73.436 bn
YTD: $759.129 bn YTD: $939.744 bn

 

Global Market Recap

 

  • USTs: Sold off late on news of U.S.-EU trade agreement.
  • Overseas 10-year: Bought globally ex Switz., NZ and Sweden.
  • SOFR: +0.03 to 1.90 vs. 1.87.
  • 3mth Libor: -0.001 to 2.334 vs. 2.335.
  • Overseas Stocks: U.S., Nikkei and HS rally; Core EU and U.K. sold off.
  • Currencies: DXY Index -0.416 to 94.197 vs. 94.613.
  • CDX HY: -5.847 to 329.940 vs. 335.787.
  • CDX EM: -8.068 to 165.647 vs. 173.715.

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

2018 Lipper Report/Fund Flows – Week ending July 11th        

     

  • For the week ended July 11th, Lipper U.S. Fund Flows reported a net inflow of $2.021b into Corporate Investment Grade Funds (2018 YTD net inflow of $52.143b) and a net inflow of $260.016 into High Yield Funds (2018 YTD net outflow of $18.217b).
  • Over the same period, Lipper reported a net inflow of $358.528m into Loan Participation Funds (2018 YTD net inflow of $8.847b).
  • Emerging Market debt funds reported a net inflow of $320.443m (2018 YTD inflow of $1,142b).

 

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 22.75 bps wider versus their new post-Crisis lows.

 

ASSET CLASS 7/24 7/23 7/20 7/19 7/18 7/17 7/16 7/13 7/12 7/11 1-Day Change 10-Day Trend PC
low
IG Avg. 120 121 122 123 123 123 123 124 125 125 <1> <5> 90 (2/01/18)
“AAA” 59 61 62 62 62 62 62 63 63 64 <2> <5> 48 (2/02/18)
“AA” 71 72 73 73 73 74 74 74 75 75 <1> <4> 51 (2/02/18)
“A” 96 98 98 99 99 99 99 100 100 101 <2> <5> 71 (2/01/18)
“BBB” 150 152 153 154 154 154 154 156 156 157 <2> <7> 115 (2/02/18)
IG vs. HY 227 229 233 236 233 235 236 238 236 241 <2> <14> 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 29.84 bps wider versus their post-Crisis lows.

INDUSTRY 7/24 7/23 7/20 7/19 7/18 7/17 7/16 7/13 7/12 7/11 1-Day Change 10-Day Trend PC
low
Automotive 108 109 109 110 110 111 111 112 112 114 <1> <6> 67
Banking 108 109 110 111 111 111 111 112 112 113 <1> <5> 75 (2/02/18)
Basic Industry 149 150 152 153 152 153 153 155 155 156 <1> <7> 110 (2/02/2018)
Cap Goods 97 99 100 100 101 101 101 101 101 102 <2> <5> 75 (1/12/18)
Cons. Prod. 107 110 110 111 111 111 111 112 113 114 <3> <7> 78 (2/01/18)
Energy 150 151 153 155 154 155 155 156 157 158 <1> <8> 115 (2/02/18)
Financials 126 127 128 129 129 130 130 131 132 132 <1> <6> 97
Healthcare 104 105 106 106 106 106 107 107 108 109 <1> <5> 77 (2/02/2018)
Industrials 122 124 125 126 125 126 126 127 127 128 <2> <6> 93 (2/02/18)
Insurance 133 134 135 136 136 136 136 137 137 138 <1> <5> 100 (2/02/18)
Leisure 115 116 116 117 117 117 118 118 119 119 <1> <4> 98 (2/01/18)
Media 155 158 159 159 159 159 159 161 162 163 <3> <8> 113
Real Estate 127 129 129 130 130 130 131 131 132 132 <2> <5> 100 (2/01/18)
Retail 108 110 111 111 111 112 111 112 112 114 <2> <6> 82 (2/02/18)
Services 113 114 114 115 115 116 115 116 116 117 <1> <4> 94  (1/31/18)
Technology 89 91 91 92 91 92 92 93 94 94 <2> <5> 71 (2/02/18)
Telecom 160 163 165 165 165 165 164 165 166 167 <3> <7> 122
Transportation 125 127 128 129 129 129 129 130 131 131 <2> <6> 91 (2/02/2018)
Utility 125 126 127 128 128 128 128 130 130 131 <1> <6> 96 (2/02/2018)

                             

New Issue Pipeline

      

*New Issue Pipeline data and M&A Pipeline data available to Mischler clients via QC distribution email

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
MBA Mortgage Applications July 20 —- <0.2%> <2.5%> —-
New Home Sales June 668k 631k 689k 666k
New Home Sales MoM June <3.1%> <5.3%> 6.7% 3.9%

 

Rates Trading Lab

 

Market was chugging along, better bid, the curve flatter until news leaked out that President Trump had secured an agreement with the EU to avoid a trade war. Europe reportedly agreed to lower industrial tariffs and import more U.S. soybeans, among other things. That fueled the risk-on metrics, causing stocks and yields to pop while the dollar got hit. This came after a very strong 5yr auction that stopped 1bp through at 2.815%, 9.6bp cheaper than June. The solid 2.61 bid/cover was the highest since May 2017 and compared favorably to the 2.55 last month and the 2.49 average. Indirect bidders accepted 67.2% vs. 62.0% last month and the 63.3% average. the best since last September while primary dealers were only awarded 24.1%, below last month’s 28.5%.

 

Thoughts:

Risk premia seeped out of the markets today as they were comforted by the creation of a dialogue with the EU. However, the fate of that dialogue will keep the markets in check. Many participants were wary that any common ground could be found, and I would wager that was one of the foundations of the strong auction bid today. The fact that rhetoric has been toned down had the desired calming effect, but at the expense of market whiplash. I think there are still far more questions than answers on the trade front and that should keep a bid below the market and I still feel that the belly of the curve is fully valued. I will be out tomorrow and Friday; Mike and Steve are here to help.

-Jim Levenson

 

UST Resistance/Support Table

 

CT2 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 100-02 99-16+ 99-18+ 100-04+ 102-02
RESISTANCE LEVEL 100-006 99-11+ 99-12 99-27+ 101-25
RESISTANCE LEVEL 99-316 99-06+ 99-07 99-18+ 101-14
SUPPORT LEVEL 99-296 99-02 99-01+ 99-11 100-29+
SUPPORT LEVEL 99-27 98-316 98-28 99-05+ 100-11
SUPPORT LEVEL 99-256 98-30 98-25+ 99-02+ 99-27

 -Steve Muchnikoff & Andy Livingston

 

Tomorrow’s Calendar

 

  • China: Swift Global Payments CNY
  • Japan: Foreign Bond Buying, PPI Services
  • Australia: Import Price Index & Export Price Index
  • EU Data: German Aug GfK, Spain Q2 Unem, Italy Jul Conf, France Jul Cons Conf
  • U.S. Data: Claims, Jun Trade, Jun Dur Goods, Cons Comf
  • Supply: Italy 2y & 10yIL, U.S. 7y
  • Events: ECB/Press Conf
  • Speeches: Nothing Scheduled

 

*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.

EU & US Closer to Resolving Trade Tariff Tit-for-Tat; Mischler Debt Capital Markets Comment