Quigley’s Corner 10.31.18- Investment Grade Issuance: Trick or Treat?

Investment Grade New Issue Re-Cap: Now Focused on November Corporate Debt Issuance.

Today’s IG Primary & Secondary Market Talking Points

Syndicate IG Corporate-only Volume Estimates for This Week, October and the November Preview

“Knowing the Past for the Future” – A Look at a Decade’s Worth of November IG Corporate and SSA Issuance

The “QC” Geopolitical Risk Monitor
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

Indexes and New Issue Volume              

New Issues Priced

Global Market Recap

2018 Lipper Report/Fund Flows – Week ending October 24th  

IG Credit Spreads by Rating

IG Credit Spreads by Industry

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

New Issue Pipeline

M&A Pipeline

Below is the opening extract from Quigley’s Corner aka “QC”  Wednesday, Oct 31 2018  edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group.One of three distinctive market comment pieces produced by Mischler, 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.

debt market commentary halloween 2018

Happy Halloween folks!

Stocks continued their end-of-month rally on a rash of good earnings reports this morning but the IG primary market is not pretty as we close out what’s been a rather horrific October. Let’s recap this week’s activity to get that point across.

Today the IG dollar DCM hosted 4 issuers across 5 tranches totaling $3.85b.  The SSA space added 3 issuers and 3 tranches for $2.30b bringing the all-in IG day totals to 7 issuers, 8 tranches and $6.15b. October was a dismal month for issuance. We were off the syndicate projection for October by $18b or $92.64b vs. $110.64 estimates. What’s more, November has averaged $98.94b in new IG Corporate-only supply across the past three years yet syndicate forecasts are calling for $85.04b this November or <$13.90b> off 16.3%. For more on November I refer you to last Friday’s Best and Brightest edition of the “QC” dated 10/26.

When Boeing hit the tapes last Monday with its $700mm ‘no grow’ two-part 10s/30s Senior Notes new issue, it happened to announce the transaction into the tragic news of a downed Boeing 737 MX8 that lost contact 13 minutes into the flight killing all 189 passengers on board. There are outstanding orders for 4,000 Boeing 737 MX8’s. Boeing stock opened up that morning down 7%. Despite that, the Boeing two-part new issue garnered one of the largest order books of the month with each of the $350mm tranches attracting order books that were 5.7x (10s) and 6-times (30s) oversubscribed! Mischler was an active Co-Manager on that deal and we too saw very strong order interest from our high quality middle markets distribution network as well, having to close our internal order book early! The cumulative order book total was $4.1b for the  $700mm deal or 5.86x covered.  All of this points to investors literally starving for industrial sector paper. Nothing could stand in the deal’s way.  The prints were flat at the break yet the bid-to-cover rates speak to strong appetite for IG industrial credit.

Then came Tuesday; that told an entirely different story. By no coincidence 4 industrial issuers who eyeballed the prior session’s Boeing story and subsequent transaction success decided to announce their own deals – Corning (3-part), Eastman Chemical (2-part), Ryder Systems and Stanley Black & Decker (2-part) all priced on the heels of Boeing. Corning got stuck at IPTs and introduced a third tranche tap; Eastman seemed okay, Ryder saw a mere 5bps of compression from IPTs to the launch and Stanley saw its 2-part tighten 10 bps – that’s 6 bps wide of the six-week average spread compression for IG Corporates or <15.96 bps> and overall it’s been a difficult month!  For reference please see my section titledNICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launchesby scrolling below.

The past three days summarizes what has been a horrific October within context of new debt issuance.  It’s appropriate that we close out the first month of Q4 on Halloween.
Now let’s take a look at the daily numbers:

  • The IG Corporate WTD total is 75.68% of this week’s syndicate midpoint average forecast or $13.38b vs. $17.68b.
  • MTD we’ve priced 83.73% of the syndicate forecast for October IG Corporate new issuance or $92.64b vs. $110.64b.
  • There are now 23 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 5 IG Corporate-only new issues was <13.00> bps.
  • BAML’s IG Master Index widened 2 bps to +125 vs. +123. (It’s post-Crisis low is +90 set on 2/01).
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to 1.18 vs. 1.17. (1.24 represents the high on 6/04; 0.85 is the post-Crisis low set on 1/30).
  • Standard & Poor’s Investment Grade Composite Spread widened 2 bps to +158 vs. +156. (+125 represents its post-Crisis low set 2/02).
  • Investment grade corporate bond trading posted a final Trace count of $21b on Tuesday versus $17.7b on Monday and $17.3b the previous Tuesday.
  • The 10-DMA stands at $17.9b.

Syndicate IG Corporate-only Volume Estimates for This Week, October and the November Preview  

IG Corporate New Issuance This Week


vs. Current
WTD – $13.38b
vs. Current
MTD – $92.64b
2018 Preview
High-End Avg. $16.24b 82.39% $111.24b 83.28% $84.24b
Midpoint Avg. $17.68b 75.68% $110.64b 83.73% $85.04b
Low-End Avg. $19.12b 69.98% $110.04b 84.19% $85.84b
The High $26b 51.46% $95b 97.52% $50b
The Low $5b 267.60% $136b 68.12% $100b


A Re-Print of November Volume Estimates, Syndicate Voting Brackets and a Decade of Novembers Past:

Syndicate IG Corporate-only Volume Estimates for November 

IG Corporate New Issuance November
Low-End Avg. $84.24b
Midpoint Avg. $85.04b
High-End Avg. $85.84b
The High $50b
The Low $100b

A Look at the Voting Brackets for November 

1: 50b
2: 75b
1: 76b
1: 75-80b
4: 80b
1: 80-90b
4: 85b
2: 85-90b
4: 90b
1: 90-100b
1: 95-100b
3: 100b

“Knowing the Past for the Future” – A Look at a Decade’s Worth of November IG Corporate and SSA Issuance  

  • Across the past ten years, all-in dollar-denominated IG Corporate plus SSA November new issuance averaged $102.65b.
  • Over the past five years, all-in IG November new issuance averaged $114.88b.
  • Over the past three years, all-in IG November issuance has averaged $109.67b.
  • The past three years of November saw IG Corporateonly issuance average $98.94b.
  • November SSA issuance has averaged $10.73b across the last three years.
All-in IG Issuance (bn) IG Corps
only (bn)
only (bn)
2017 137.68 118.28 19.4
2016 81.18 75.98 5.2
2015 110.14 102.56 7.58
2014 138.53 118.91 19.62
2013 106.86 95.75 11.11
2012 147.87 136.91 10.96
2011 96.88 77.21 19.67
2010 67.56 63.65 3.91
2009 92.06 67.54 24.52
2008 47.75 27.35 20.40

Note: includes TARP/TALF & FDIC insured issuance

Happy Halloween to you and yours.
I wish you all a frightfully delightful evening!
Ron Quigley, Managing Director, Head of Fixed Income Syndicate

The “QC” Geopolitical Risk Monitor

Updates are in BOLD print!
Please note that I added geopolitical risk status arrows in beginning in today’s “QC”.
↑ denotes upgraded; ↓ downgraded and ↔ unchanged.
I hope this is helpful to you. Thanks! -RQ

Risk Level/Main Factor Geopolitical Risks
HIGH ·        N/A

U.S. Trade Tariffs
U.S.-China Trade War

·        10/29 – According to a Bloomberg report, Trump’s Admin. is prepping to hike tariffs on all Chinese goods remaining (~$260bn) as early as December. Pres. Trump will meet with Xi will meet at the G20 Summit in Argentina at the end of November in a last attempt to resolve differences. 10/03 – China is clearly waiting for U.S. mid-term elections to see how voters react to Pres. Trump’s tariffs before responding to U.S. demands given China’s slowing economy and struggling SMBs.  The USMCA forged on 10/01 also bars any of the 3 member countries from entering into a free-trade deal with China allowing the other members to terminate USMCA with a 6-month notice. YTD the S&P 500 is now 2.42% while China’s Shanghai Shenzen CSI 300 Index is down <26.98%>. The difference is <29.40%>.

Sanctions or war with Iran?

Trump to withdraw from INF Treaty of 1987?

EU in Deal with Axis?

U.S. Midterm Elections

Italian Debt Crisis?



·        10/29 – Any sanctions against Saudi Arabia for the brutal planned assassination of journalist and U.S. resident Jamaal Khashoggi may take time. MENA may bubble over in a clash between Iran and the Kingdom. As a result, buying time for sanctions is helping avoid a much larger conflict in what is a pick your poison decision for the Trump Admin.



·        10/29 – U.S. midterm elections are on Nov. 6th. Pres. Trump is preparing a final nationwide 8 state push to rally the GOP prior to the elections in a climate of increasing national subdivision & divisiveness post pipe bomber incident and tragedy at a Jewish synagogue over the weekend in Pittsburgh.  If the GOP wins both the House and Senate, Trump will pass all of his agenda; If Dems win both, impeachment will be their agenda; a more likely outcome is for the Dems to take the House, with GOP gains in the Senate.


·        10/29 – Italy’s new 2.4% budget proposal rejected by the EU is inviting additional pressure from economists warning a deepening financial crisis, higher rates, downgrades and flight risk that is already evident through capital outflows. The Euro Commission could enforce an excessive debt procedure or EDP on Italy that could wind up imposing strict sanctions on the nation. By entering EDP it will be far less of a crisis vs. not doing so according to senior EU economists.  Dep. PMs Salvini and Di Maio separately reiterated they will not adjust the budget for 2019 despite the EU Commission’s first time ever rejecting a member county’s submission. The BTP is yielding 3.469% or +310.3 vs. the Bund and well off last week’s highs. Italy is the world’s #3 debtor nation & EU’s 3rd largest economy. Some think Italy could eventually break from the EU. Italian banks hold ~$215b equiv. of non-performing loans, more than any EU nation. Italy’s debt to GDP ratio is 130%. The EU target is 60%.


Immigrant Caravan to U.S.


Brazilian Election


Merkel’s Farwell to CDU

U.S.-NOKO Summit II?

·        10/28 – U.S. Defense Sec. Mattis announced that the military is planning defense of the U.S. Southern Border. DHS Director Nielsen tweeted that “there is a legal way to enter the U.S. Those choosing to enter illegally will be stopped. My message to the caravan is : “Do not come. You will not be allowed in.” 10/23 – A caravan of 10k-13k Cent. American immigrants, many families seeking asylum in the U.S., is growing, and headed toward the U.S. Many are from Honduras, Guatemala and El Salvador. The Dept. of Homeland Security is monitoring the groups. The caravan(s) are setting up for a border conflict. Many have contended, including the President of Honduras Juan Orlando Hernández to V.P Mike Pence that the caravan was initially instigated thru support and funding by Honduras’ left wing party with others suggesting Venezuela also played a role.

·        10/29 – As expected, Brazil’s far-right candidate Jair Bolsonaro won big in the Pres. election gaining 56% of the vote vs. the leftist Worker’s Party candidate Fernando Haddad who had 44%. The maverick nationalist with a military background is atypical of the political establishment; tough on crime and very outspoken. He has promised low interest rates, a reduction of public debt, is seen as good for business. Detractors say he will abuse human rights and cut back on freedom of speech and civil liberties. Brazilians are fed up with political corruption and violent crime. Bolsonaro’s win continues a global trend toward Nationalism in political elections pitting extreme opposites in contentious campaigns.

·        10/29 – Germany’s Angela Merkel announced she will not seek re-election as Chancellor of Germany when her term expires in 2021 and will also step down as Head of the conservative Christian Democratic Union (CDU) in December. She could be out of her Chancellorship at some point in 2019 after losing nearly 12% of votes in State of Hesse, garnering only 27% – the lowest in 52 years. Voters sent a “protest message” to Berlin. Parties are divided in Germany and some may have no choice but to form a coalition with the far right, anti-immigration AfD, which many thought inconceivable. The AfD has seats in all 16 regional parliaments and the Bundestag. Nationalism continues to spread in the EU this time in the keystone of the Union.

·        10/29 – The U.S. Rep. for North Korea said in Seoul that NOKO must be more proactive toward verifying its denuclearization to pave the way for conciliatory meetings with the U.S. and SOKO though the next planned Summit is likely for early next year between Pres. Trump and Kim Jong-un. 10/09 – Pres. Trump was upbeat about ongoing discussions with North Korea saying he would like to host the next summit at his Mar-a-Lago estate or would also be happy to travel to North Korea.

·        October 29th MTD 2018 Terror Event Casualty Total: 234 terrorist attack; 1,001 dead; 1,507 wounded.

*Terror Event statistics include attacks by violent non-state actors. It does not include terrorism related to drug wars and cartel violence.

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:

WEEK 10/22
WEEK 10/15
WEEK 10/08
WEEK 10/01
WEEK 9/24
WEEK 9/17
New Issue Concessions 6.27 bps 8.35 bps 2.42 bps 9.74 bps 4.20 bps 4.42 bps 4.04 bps 4.87 bps
Oversubscription Rates 3.40x 1.81x 3.54x 3.09x 1.84x 2.73x 3.76x 3.25x
Tenors 16.85 yrs 14.85 yrs 12.00 years 10.66 yrs 7.45 yrs 10.14 yrs 9.38 yrs 10.68 yrs
Tranche Sizes $425mm $406mm $463mm $872mm $673mm $1,196mm $676mm $802mm
Avg. Spd. Compression
IPTs to Launch
<13.10> bps <9.02> bps <15.62> bps <16.07> bps <12.84> bps <16.06> bps <18.33> bps <16.85> bps


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 63.60 62.49 <1.11>
VIX 23.35 21.23 <2.12>
CT10 3.124% 3.144% <0.02>
S&P 2,682 2,711 29  
DOW 24,874 25,115 241
Nasdaq 7,161 7,305 144
OIL 66.18 64.87 <1.31>  
GOLD 1,222.93 1,214.76 <8.17>  



IG Corporates




Total (IG + SSA)

DAY: $3.85 bn DAY: $6.15 bn
WTD: $13.38 bn WTD: $16.68 bn
MTD: $92.64 bn MTD: $122.69 bn
YTD: $1,085.13 bn YTD: $1,324.35 bn


Global Market Recap

  • USTs: sell-off pushed yields up 2 bps thru CT10; 3 bps on the T30 as the gov’t announced it will raise amount of LT debt sold in Q4 & ADP beat by 21+%
  • Overseas 10-year: Global sell-off ex-EU Peripherals, Argy, N.Z. & China.
  • SOFR: was unchanged at 2.18.
  • 3mth Libor: +0.015 to 2.541 vs. 2.526.
  • Overseas Stocks: Global equity rally painted all screens green today thanks to strong Q3 earnings from Facebook that propelled the FANGS.
  • Currencies: DXY Index +0.105 to *97.116 vs. 97.011.
  • CDX HY: -4.662 to 346.145 vs. 350.807.
  • CDX EM: +0.629 to 205.563 vs. 204.934.

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

2018 Lipper Report/Fund Flows – Week ending October 24th  

  •      For the week ended October 24th, Lipper U.S. Fund Flows reported a net inflow of $414.986m into Corporate Investment Grade Funds (2018 YTD net inflow of $71.469b) and a net outflow of $2.364b from High Yield Funds (2018 YTD net outflow of $20.093b).
  • Over the same period, Lipper reported a net outflow of $7.421m from Loan Participation Funds (2018 YTD net inflow of $11.662b).
  • Emerging Market debt funds reported a net inflow of $391.992m (2018 YTD inflow of $3.557b).

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 26.75 bps wider versus their new post-Crisis lows!

*Denotes new post-Crisis low!

*Denotes tied post-Crisis low!

ASSET CLASS 10/30 10/29 10/26 10/25 10/24 10/23 10/22 10/19 10/18 10/17 1-Day Change 10-Day Trend PC low
IG Avg. 125 123 123 122 119 120 118 117 117 116 +2 +9 90 (2/01/18)
“AAA” 65 63 64 63 60 62 60 59 58 59 +2 +6 48 (2/02/18)
“AA” 70 69 69 69 66 68 66 66 65 65 +1 +5 51 (2/02/18)
“A” 99 97 98 96 94 95 94 93 93 92 +2 +7 71 (2/01/18)
“BBB” 158 156 156 154 151 152 149 148 148 147 +2 +11 115 (2/02/18)
IG vs. HY 264 261 262 250 249 245 234 234 234 229 +3 +35 222 (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 37.00 bps wider versus their post-Crisis lows!
*Denotes new post-Crisis low!
*Denotes tied post-Crisis low!

INDUSTRY 10/30 10/29 10/26 10/25 10/24 10/23 10/22 10/19 10/18 10/17 1-Day Change 10-Day Trend PC low
Automotive 135 135 137 135 134 135 130 127 126 124 0 +11 67
Banking 112 111 112 110 108 110 107 107 107 106 +1 +6 75 (2/02/18)
Basic Industry 156 155 156 153 150 151 148 147 147 146 +1 +10 110 (2/02/2018)
Cap Goods 105 103 103 102 99 101 99 98 98 97 +2 +8 75 (1/12/18)
Cons. Prod. 115 112 113 112 109 110 108 108 107 107 +3 +8 78 (2/01/18)
Energy 158 155 154 151 149 149 146 145 145 143 +3 +15 115 (2/02/18)
Financials 127 126 127 125 122 123 122 122 122 122 +1 +5 97
Healthcare 106 104 104 103 100 101 99 98 98 98 +2 +8 77 (2/02/2018)
Industrials 128 126 126 125 122 123 120 120 119 118 +2 +10 93 (2/02/18)
Insurance 132 131 131 129 127 128 127 126 126 126 +1 +6 100 (2/02/18)
Leisure 162 162 159 157 157 157 153 154 153 153 0 +9 98 (2/01/18)
Media 153 152 152 150 148 148 146 145 145 144 +1 +9 113
Real Estate 127 125 125 124 121 123 122 122 122 122 +2 +5 100 (2/01/18)
Retail 111 109 110 109 105 107 105 104 103 103 +2 +8 82 (2/02/18)
Services 114 113 113 112 111 112 110 110 109 110 +1 +4 94  (1/31/18)
Technology 97 95 95 93 89 91 88 88 87 87 +2 +10 71 (2/02/18)
Telecom 160 158 159 157 154 156 152 152 151 150 +2 +10 122
Transportation 130 129 129 126 124 124 122 121 120 119 +1 +11 91 (2/02/2018)
Utility 129 127 128 126 124 124 123 123 123 122 +2 +7 96 (2/02/2018)


Economic Data Releases 

MBA Mortgage Applications Oct. 26 —- <2.5%> 4.9% —-
ADP Employment Change October 187k 227k 230k 218k
Employment Cost Index Q3 0.7% 0.8% 0.6% —-
Chicago Purchasing Manager October 60.0 58.4 60.4 —-


Rates Trading Lab

A pretty predicable month-end today. Equities ended higher, but well off their highs. Yields also ended higher, but also off their highs. The curve actually ended up steeper after flattening overnight and after the long end saw good selling into the close. On the data front, ADP survey came in on the firm side proving fodder for speculation about upside risks to the employment report on Friday. ECI came in a bit stronger than expected and Chicago PMI disappointed. Treasury announced its $83bbn November refunding package. There was a small surprise on the coupon side when the debt managers revealed that only the 2yr, 3yr and 5yr notes would be increased over the next two months, then hold steady in January, while the 7yr, 10yr, 30yr and FRN maturities will increase (as has been the case) by $1bbn in November. A bit more to chew on the inflation issuance front, however as Treasury will add new October 5yr TIPS in 2019, replacing the October 30yr TIPS reopening, and expects total linker issuance to rise by $20-$30bbn next year. So next year, there will be new issue 5yr TIPS in April (re-opened in June) and August (reopened in December), new issue 10yr TIPS In January (reopened in March and May) and July (reopened in September and November) (as before) and 30yr TIPS in February (reopened in August).


So, some interesting things to think about with the refunding announcement. It seems like nominal issuance may at least begin to ebb next in favor of real yield issuance. That issuance will be front-end loaded and long end tips will be trickier to trade in the latter half of 2019 as there will be no 30yr issuance between August 2019 and February 2020. What I find fascinating is that this has the potential of keeping real rates elevated and that is yet another potential brake on this economy. I’m not sure the debt managers were considering that, but I think economists will give it a think. The good news for stocks is that the relative paucity of issuance in long TIPS will make equity valuations a bit more tenable if you look at stocks (like I do) as the longest duration TIPS you can buy. As for the market itself, I stick to my thesis that the curve will stay steeper than you think it should be and rates will be range-bound.

Jim Levenson 

UST Resistance/Support Table

CT2 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 100-036 99-30+ 100-04+ 98-15+ 94-01
RESISTANCE LEVEL 100-02+ 99-246 99-29 98-05+ 93-19
RESISTANCE LEVEL 100-012 99-21 99-23+ 97-30+ 93-05
SUPPORT LEVEL 99-31+ 99-14 99-14+ 97-18 92-19
SUPPORT LEVEL 99-306 99-102 99-09 97-11+ 92-06
SUPPORT LEVEL 99-292 99-07 99-05 97-05 91-22

 -Steve Muchnikoff & Andy Livingston 

Tomorrow’s Calendar

  • China: Caixin PMI Mfg
  • Japan: Foreign Bond Buying, Nikkei Mfg Pmi, Vehicle Sales
  • Australia: Commodity Index SDR, Commodity Index AUD
  • EU Data: U.K. Oct Mfg PMI
  • S. Data: Oct Challenger, Q3 Prod/ULC, Claims, Cons Comf, Oct Man PMI, Sep Const Spend, Oct ISM
  • Supply: Nothing Scheduled
  • Events: U.K. MPC/Press Conf/QIR
  • Speeches: Nicolaisen, Olsen, Wilkins, Schembri, Lane, Zurbruegg
  • Holidays: Widespread Holiday in the EU – All Saints Day

 New Issue Pipeline

Above is the opening extract from Quigley’s Corner aka “QC”  Wednesday, Oct 31 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 

 *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* (*public domain information), 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.

Investment Grade Corporate Debt Market Commentary: Halloween 2018 Edition