Tuesday, Dec. 16, 2015

Corporate Bond Market
Very ugly start to the session as the market digests the news out of Russia and what it means for the rest of the world.  After the recent plunge in the Ruble the Central Bank made the decision to take its key interest rate to 17% from 10.5% and revive confidence in the currency.  Global equities are down across the board with DJIA Fut -100 and S&P Fut -14.6 so far.  Credit taking another leg out after a tough session Monday, IG23 currently +2.5 at 76¾/77¼. Investors beginning to reassess the IG market looking for names with Russian exposure.  The US Treasury market is ripping with all eyes on that 2% 10yr Treasury resistance level.  The strong bull steepening bid overnight with most volumes going through in futures.  Move seems to be driven once again by EM and commodity market participants looking to find some safe haven amidst the instability of their markets.  The increased volatility and market turmoil should add a bit more intrigue to the FOMC meeting tomorrow at 2pm.

In secondary credit trading we are still seeing pressure in the Energy sector and expect that to continue unless we see some stability in the oil price slide.  Metals and Mining also under pressure out another 10-20bps this morning after trading 10-15bps wider yesterday and +20-100bps last week. New issue remains non-existent so there is no supply pressure.  In terms of headlines, Talisman confirmed that Repsol plans to purchase the company for $8.3bn and will be taking on $4.7bn in TLMCN debt.  Elsewhere Boeing and CVS Health both announced boosts in share buyback programs and dividend increases.

Yesterday's session was also marked by significant pressure on the hybrid/pfd market which had previously been resilient to the weakness in the rest of the market.  Go-Go hybrids were trading down 1-2pts across the board with better sellers.   UK Bank Stress Test results out, no real surprises there.  While Co-Operative Bank failed at a core capital ratio of -2.6%,  BARC, HSBC, SANTAN, etc all look good.  The High Yield market had a tough session yesterday as well with a number of bid lists and very few players willing to step in and bid.  We continue to believe that when the dust settles this is creating opportunities in oversold names that should benefit from lower commodity prices, however it is impossible to call the bottom.

Economic Data: Housing Starts (8:30am) and Markit US Manufacturing PMI (9:45am) are due to be released today.  


Municipal Bond Market
Munis were quiet to start the week with extremely light new issuances.  We expect buyers to focus primarily on the secondary with a substantial amount of cash to put to work and very little new debt being priced. 

In credit news, PREPA announced that its business plan includes no layoffs, but declined to divulge any additional information about its 5 year outlook.  PREPA debt was unchanged on the day. 

Volume in in PR GO 8’s of 2035 was above average as investors waited on PREPAs 5 year financial plan.  Benchmark GOs were weaker on the day with 5mm+ trading @ 84.625 (9.745%).    Bonds have traded slightly weaker over the past few weeks and within a range of $85-$86.  This is the first time in months that we have seen block trades below an $85 dollar price. 

30 Day visible supply: $7.25bln

New Issue:
$13mln    West Depford, NJ     2017-2035     /A+    750
$90mln   Gainesville, GA Water and Sewer    2015-2028    Aa2/AA-    1000
$10mln    Keller, TX G.O. s Refunding    2015-2026    Aa1/AAA    250
$5mln     La Vergne County, TN    2016-2035     /AA    500

UST 10yr 2.116%