Quigley’s Corner 05.30.18 : Investment Grade Bond Issuance: Market Reboots
Investment Grade Bond New Issue Re-Cap – Market Reboots
Today’s IG Primary & Secondary Market Talking Points
Syndicate IG Corporate-only Volume Estimates For This Week and May
The “QC” Geopolitical Risk Monitor
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
2018 Lipper Report/Fund Flows – Week ending May 23rd
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
In a dramatic reversal, financial markets recouped much of yesterday’s losses by kicking Italy’s political drama off today’s stage with its own powerful steel-tipped boot in a memorable display of market resiliency. Issuers were actively checking the market this morning with two utilities accounting for three of the session’s six tranches. Dominion Energy and Southern California Edison (NYSEAMERICAN: SCE-E) printed along with a MetLife, Inc.(NYSE: MET) $25 par non-cumulative PerpNC5 preferred stock transaction that was upsized to $700mm from an initially announced $200mm deal size on the back of strong demand. Morgan Stanley had physical books. Congrats to Team MS’s Captain Morgan, Mike Borut for leading that charge. It was a nice shot in the arm after yesterday’s market woes. There remain myriad geopolitical event risk factors treading on thin ice that could make this summer a bumpy ride. But it’s responses like today’s session that remind us all how irrepressible the market is.
Today the IG dollar DCM hosted 4 issuers across 6 tranches totaling $3.45b. The SSA space was inactive.
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 17.23% of this week’s syndicate midpoint average forecast or $3.45b vs. $20.02b.
- MTD we’ve priced 87.49% of the syndicate forecast for April IG Corporate new issuance or $117.975b vs. $134.84b.
- There are now 14 issuers in the IG credit pipeline.
Today’s IG Primary & Secondary Market Talking Points
- MetLife Inc. upsized today’s 28mm share $25 par non-cumulative PerpNC5 Preferred stock transaction to $700mm from $200mm
- The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 5 IG Corporate-only new issues was <8.70> bps.
- Including today’s MetLife Inc. $25 par perpNC5 Preferred stock transaction, spread compression among the 6IG Corporate and Preferred was <8.29> bps.
- BAML’s Investment Grade Bond Master Index widened 4 bps to +120 vs. +116. (It’s post-Crisis low is +90 set on 2/01).
- Bloomberg/Barclays US IG Corporate Bond Index OAS widened 3 bps to +114 vs. 1.11. (0.85 is its post-Crisis low set on 1/30).
- Standard & Poor’s Investment Grade Composite Spread widened 5 bps to +156 vs. +151. (+125 represents its post-Crisis low set 2/02).
- Investment grade corporate bond trading posted a final Trace count of $16.9b on Tuesday versus $6.9b on Friday and $18.5b the previous Tuesday. Monday was a holiday.
- The 10-DMA stands at $16.8b.
Syndicate IG Corporate-only Volume Estimates For This Week and May
| IG Corporate New Issuance | This Week 5/29-6/01 |
vs. Current WTD – $3.45b |
May 2018 | vs. Current MTD – $117.975b |
| Low-End Avg. | $19.32b | 17.86% | $133.64b | 88.28% |
| Midpoint Avg. | $20.02b | 17.23% | $134.84b | 87.49% |
| High-End Avg. | $20.72b | 16.65% | $136.04b | 86.72% |
| The High | $15b | 23.00% | $110b | 107.25% |
| The Low | $26b | 13.27% | $150b | 78.65% |
The “QC” Geopolitical Risk Monitor
Updates are in BOLD print!
| Risk Level/Main Factor | Geopolitical Risks |
| HIGH | · N/A |
| ELEVATED North Korea & Italy |
· 5/29 – President Trump continues pressing demands for complete denuclearization of North Korea. The on again, off again June 12th summit may still happen. Trump cancelled the planned summit last week sighting Kim Jong-un’s “tremendous anger and open hostility” but asked his top aides to continue carrying out high level talks in preparation for it.
· 5/29 – Italy’s en route to derail the Euro Zone as its two ant-establishment parties 5-Star and League could not form a coalition. President Mattarella put the kabosh on the first populist gov’t. by nixing their candidate for finance minister given their euro skepticism. As a result Mattarella vetoed all cabinet ministers, installed a EU friendly neutral gov’t. headed by an interim PM and former IMF economist as Italy looks to be headed for new elections. Italy has now gone without a gov’t. for 86 days shattering the old record of 82 set in 1996. Yields on Italian debt soared, the EU is getting hammered. The two populist parties have over 50% support and promote tough immigration reform, increased spending, lifting all sanctions against Russia, creating 2 tax brackets of 15 and 20%, dropping a previously boosted retirement age and a citizen’s income for the poor. This makes Greece’s problems looks like child’s play. With Italy, Europe should have an emergency plan in place for a derailment of the Union. Italy had 70 post WWII gov’ts in 72 post-WWII years – one every 1.02 years. It is the EU’s 3rd largest economy, has the world’s 3rd highest debt-to-GDP ratio at 132.5% and a $2.8 trillion (equiv.) national debt. Italy is clearly the EU’s biggest economic risk. Italy’s banking sector holds $220bn of bad loans. |
| CAUTION U.S-China Tariffs, Iran, Israel, U.S. Interest Rates, BREXIT & Terror |
· 5/29 – Motivated by intellectual property rights violations, the Trump Administration will impose 50% tariffs on Chinese imports along with new controls and restrictions. Although tensions reduced since U.S. Tsy. Sec. Steve Mnuchin said Pres. Trump would “put the trade war on hold” last Monday 5/21, negotiations have failed to produce any sweeping resolution. Trump indicated a list of tariffed imports will be available on 6/15.
· 5/29 – Iran’s Ayatollah is concerned the EU will not be able to salvage their end of the Iran nuclear deal as EU nations that link their security to U.S. security will cave to U.S. demands. Iran doubts the EU can prevent major companies from withdrawing due to new U.S. sanctions. 5/08 – President Trump pulled the U.S. from JCPOA while imposing mort stringent sanctions against Iran. He also warned heavy sanctions against nation that assists in Iran’s nuclear pursuits. On 4/30 Israeli PM Netanyahu revealed evidence proving Iran’s nuclear ambitions continued in violation of the 2015 agreement. · 5/29 – Gaza Strip based Hamas and rebels launched over two dozen rockets into southern Israel in the largest barrage of Palestinian fire since 2014. Israel answered with targeted bombings. · 5/29 – U.S. interest rates: Amidst a rising rate environment, Italy and EU concerns counter by pushing investor cash into the safe haven of USTs thereby compressing yields. June is historically the second lowest volume month for issuance besides December. Repatriation and tax reform deepened cash reserves for many U.S. corps especially tech cos. The absence of AAPL, MSFT, etc has impacted YTD issuance. · 5/17 – Pressure on U.K. PM Theresa May mounts as Britain’s House of Lords dealt BREXIT its 15th defeat, this time over environmental protections issues by a 54%-46% margin. In addition, friction intensified between supporters of a post-BREXIT customs partnership with the EU vs. resistance by those who support technology to monitor the critical border between Ireland and Northern Ireland. · May 2018 Terror Event MTD Casualty Total: 124 terrorist attacks; 850 dead; 1,116wounded. |
| MODERATE Spain & CyberCime |
· 5/29 – Spanish Prime Minister Rajoy’s minority administration will face a second vote of confidence on Friday 6/01 amidst increasing pressure and resistance with calls for new elections that could unseat him thanks to a multi-million-euro graft conspiracy that saw dozens of his party’s officials convicted of various crimes. Corruption runs rampant under Rajoy’s watch. He survived a similar vote in June but may not make it through this round. The IBEX is down 8.6% YTD.
· Cyber Crime: Crypto-jacking, PowerShell-based attacks, cybercriminal underground, ransomware, viruses, hacking, worms and malware estimated to cost the world $6 trillion by 2021. Watch Russia’s involvement. |
| MARGINAL | · N/A |
Have a great evening!
Ron Quigley, Managing Director and Head of Fixed Income Syndicate
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” Wednesday May 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.
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