Tax Reform Bill Passes Both Houses-Let The Good Times Roll

by | Dec 20, 2017 | Debt Market Commentary

Quigley’s Corner 12.20.17 – Tax Reform Bill Heralded By US Corporations

 

 

 

Investment Grade New Issue Re-Cap -Tax Reform Bill Ready For President’s Signature

 

Investment Grade Credit Spreads at Post Financial Crisis Lows

 

Syndicate IG Corporate-only Volume Estimates For This Week, December & January 2018

 

Global Market Recap

 

The “QC” Geopolitical Risk Monitor

 

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

 

Indexes and New Issue Volume              

 

Lipper Report/Fund Flows – Week ending December 13th

 

IG Credit Spreads by Rating

 

IG Credit Spreads by Industry

 

New Issue Pipeline

 

M&A Pipeline Highlights

 

Rates Trading Lab

 

Economic Data Releases

 

Tomorrow’s Calendar 

 

Below is the opening extract from Quigley’s Corner aka “QC”  Wednesday December 20 2017 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.

 

Investment Grade New Issue Re-Cap – It’s Official: Tax Reform Bill Has Passed in Both Houses

 

That is one heck of a Christmas present to the American middle class which – make no mistake about it – IS the engine that drives the greatest country on the planet. To illustrate just how great this event could prove to be, let’s turn to the world’s 15th largest global company AT&T Inc. (NYSE:ATT) which announced it will give over 200,000 U.S. employees a special $1,000 bonus – to celebrate the signing of today’s historic tax bill! AT&T also committed to invest $1b in the U.S. in 2018.

IG Spreads Set or Tie Post-Crisis Lows

 

The good news doesn’t stop there though! Getting more granular to our IG dollar DCM, today saw credit spreads set or tie new post-Crisis lows across the four IG asset classes and the 19 major industry sectors.  It was bound to happen as IG secondary spreads continue to tighten given the absence of any new issuance here at year end among others. I suspect that despite the 10% reduction in IG Corporate new issuance being called for in 2018 as a consequence of the 21% corporate tax rate, there should also be a positive impact of the massive repatriation of trillions of dollars of offshore funds back to domestic corporate coffers. Overall, the new tax reform bill should reflect positively on IG credit quality.

 

Year-to-date we priced $1.333 trillion in IG Corporate new issues. Many are calling for a 10% reduction in 2018 IG Corporate issuance versus 2017 thanks to repatriation of funds. That would bring the amount down to $1.2tln.  Backing out this year’s $200b in M&A related financings gets you to $1tln even. I think we’ll actually see another 5% increase to that number thanks to redemptions, etc so, and more utility and FIG activity that will bring us to $1.05tln. However, many issuers are looking at their new piles of cash as a “strategic asset” in which they will be asking, “what can we buy with all these new found greenbacks?”  I think we’ll actually see ~$250bn in M&A-related financings.  So, that would bring my total to $1.3tln.

 

So, $1.3tln is my call for 2018 IG Corporate new issuance. Remember I count split-rated issuance as long as one of the 3 IG ratings is by Moodys, S&P or Fitch and I also include IG rated $25 par Preferreds.

 

Additionally, today’s November Existing Home Sales beat by 5.06% or 5.81m vs. 5.53m the highest number in 11 years!  The MoM number was 5.6% vs. 0.9% forecasts.

 

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

 

  • The IG Corporate WTD total is 0.00% of this week’s syndicate midpoint average forecast or $0.00m vs. $994mm.
  • MTD we’ve priced 79.96% of the syndicate forecast for December IG Corporate new issuance or $26.387bvs. $33b.
  • There are now 5 issuers in the IG credit pipeline. 

 

Today’s IG Primary & Secondary Market Talking Points  

 

  • The IG Average set a new post-Crisis low of +99; the “AA” asset class also set a new post-Crisis low of +56.
  • The “A” (+77) IG asset class tied its post-Crisis low for the second consecutive session. “BBBs” also tied it post-Crisis low of +129.
  • Of the 19 major industry sectors, a total of 9 of them (47.4%) set or tied their post-Crisis lows as follows: Basic Industry (+124) and Transportation (+102) set new lows while Banking (+82), Consumer Products(+84), Energy (+132), Industrials (+104), Insurance (+108), Real Estate (+111) and Services (+100) tied their post-Crisis lows.
  • BAML’s IG Master Index tightened 1 bp to +99 vs. +100.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to 0.94 vs. 0.95.
  • Standard & Poor’s Investment Grade Composite Spread tightened 3 bps to +137 vs. +140 setting a new post-Crisis low dating back to July 30th 2014 (+140).
  • Investment grade corporate bond trading posted a final Trace count of $14.5b on Tuesday versus $12.9b on Monday and $18.6b the previous Tuesday.
  • The 10-DMA stands at $15.4b.

 

Syndicate IG Corporate-only Volume Estimates For This Week, December & January 2018

 

IG Corporate New Issuance

Thru year End

12/18-12/29

vs. Current

WTD – $0.00b

 December 2017

vs. Current

MTD – $26.387b

 January 2018
Low-End Avg. $344mm 0.00% $31.33b 84.22% $128.54b
Midpoint Avg. $994mm 0.00% $33b 79.96% $129.29b
High-End Avg. $1.64b 0.00% $34.67b 76.11% $130.04b
The Low $0b 0.00% $25b 105.55% $100b
The High $5b 0.00% $28b 94.24% $150b

 

 Global Market Recap

 

  •  U.S. Treasuries – 30yr experienced its third terrible session in a row.
  • Overseas Bonds – JGB’s weaker. EU core and semi core lost. EU Peripherals mixed.
  • 3mth Libor – Set at 1.65793% the highest since December 2008.
  • Stocks – Small losses at 3pm.
  • Overseas Stocks – Asia lower except Nikkei. Europe closed red except Greece.
  • Economic – U.S. housing data continues to impress. Existing home sales best since 2006.
  • Overseas Economic – Japan data was mixed. German PPI was lower than the last.
  • Currencies – USD better vs. Yen, weaker vs. Euro/CAD and little changed vs. Pound/AUD.
  • Commodities – CRB, crude oil, gasoline, gold, copper, silver, wheat, etc higher.
  • CDX IG: -0.61 to 49.14
  • CDX HY: -1.46 to 308.13
  • CDX EM: -1.24 to 120.54

 

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

 

-Tony Farren

 

 

 

The “QC” Geopolitical Risk Monitor

 

 

 

Risk Level/Main Factor Geopolitical Risks

HIGH +

“North Korea”

 ·        12/20 – U.K. successfully tests Sea Ceptor air defense aboard HMS Argyll recently sent to Sea of Japan to join U.S. Naval ships. System shields against multiple airborne targets protecting 500 square mile area.  NOKO pushed further into a corner. 12/05 – U.S. reveals powerful microwave pulses from missiles that can disable NOKO’s electronic missile/launch systems. 12/02 – WH Nat’l. Security Advisor H.R. McMaster says “possibility of war with NOKO increases every day.” 11/28 – South Korea’s Joint Chiefs of Staff verified that North Korea fired a ballistic missile that landed in the Sea of Japan. SOKO Olympics begin Friday 2/2018 thru Sunday 2/25. 11/20 – Pres. Trump announced the U.S. designated NOKO as a state sponsor of terrorism. Warns NOKO that “nuclearization puts its regime in grave danger & increases the peril it faces.”

ELEVATED

“MENA and

Trumponomics and Beltway Beginning to Function”

·        12/20 – The House, in its re-vote cleared the tax rewrite for Trump’s signature 224-201. Tax Reform is official.  One of the single greatest GOP legislative wins in history. 12/19 – The Senate passed the bill in a 51-48 vote after the House voted in support 227 to 203 (4 no votes) requiring a revote the 12/20 due to a 529 home schooling technicality.  A typical U.S. family will get an add’l. $2k in 2018, the U.S. Corporate tax rate would be reduced to 21%, Americans can choose their own healthcare and Tax  Form is simplified. These are the largest tax cuts in U.S. history. President Trump said he wanted to sign the bill into law before Christmas.

·        12/19 – Yemeni rockets launched at the royal palace in Riyadh intercepted by Saudi forces.  Iranian-backed rebels now targeting population and power centers in Saudi Arabia is more than enough to promote an act of war between KAS and Iran. 12/06 – Pres. Trump formally recognizes Jerusalem as Israel’s capital. Plans to move U.S. embassy there from Tel Aviv. Could take three years. Palestinian leader Mahmoud Abbas and Jordan’s King Abdullah warn Trump of dangerous consequences for stability and security in the Middle East. Turkey’s Erdogan threatens to cut ties with Israel calling the move a “red line for all Muslims” and decision puts “world and region in a ring of fire.” 12/04 – Former Yemeni President Ali Abdullah Saleh assassinated in Sanaa by former allied and Iranian-backed Houthis.  Yemen, like Lebanon are sights of proxy wars fought between Saudi Arabia and Iran. 11/28 – Israeli Mossad working with Saudi’s General Intelligence Presidency (GIP) over mounting tensions with Iran. Shared interests against Iran are bringing both nation’s closer. Lebanon’s PM al-Hariri resigned from Saudi Arabia 11/05 blaming Iranian aggression. Abandons support of Iran’s Hezbollah terror group.  Beirut, is proving ground for Saudi-Iranian proxy wars. Crown Prince Mohammed bin Salman’s plans sweeping with “Vision 2030” to wean KSA off oil. Saudi inner players arrested in anti-corruption probe involving multi-billion dollar “settlements.” Both Trump and KAS share strong views of an anti-nuclear Iran. KSA needs oil above $81 to break even. Mideast tension expected to boost the price of oil.

CAUTION

“Russia, Europe,

Uranium 1 & Terror”

·        December MTD Terror Stats a/o 12/20: 56 terrorist attacks; 225 dead;414 wounded.

·        U.S. trade protectionism contrarian to the world coming together on trade. Long term impact?

MODERATE

“China”

·        12/19 – Spain’s Rajoy announces snap elections on Thursday, Dec. 21st to help defray the Catalonian independence crisis. Could result in breakaway = could spread thru EU. Separatists remain ahead in latest polls 46.9% to 43.7% for the Unionists. 7.8% are “non-aligned.”

·        Italian elections to be held no later than March 20th, 2018. 5-Star Populist Party leader Luigi Di Maio is hopeful for EU negotiations but said he would vote for an ITALEXIT if discussions fail. Italians are resistant to the EU’s stringent austerity measures. 5-Star holds a lead in polls.

·        China hard landing: rising corporate debt & slower GDP growth are OECD and IMF concerns. Debt is 250% of GDP. 6% GDP in 2018 will be difficult.

·        Cybercrime, ransomware, viruses & hacking.

MARGINAL

“2018 US Recession?”

 ·        12/13 – FOMC raises rates 0.25% recognizes prolonged inflation miss that is globally low. Sees faster 2018 growth and strong labor market. Economic activity and investment picked up. Low odds of a recession. Concerned about debt. Asset prices characterized as being “elevated.”

 

 

 

Above is the opening extract from Quigley’s Corner aka “QC”  Wednesday December 20 2017 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: [email protected] 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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