Wednesday, Jan. 14, 2015

Corporate Bond Market
Ugly start for the equities as concerns of falling commodity prices continue to plague the market and cause a sell-off in riskier assets.  DJIA FUT  -131, S&P FUT -15.  Not helped by weak economic data just released.  As such the government bond market is higher across the board with the 10yr treasury yield as low as 1.813% in early trading.  Oil still hovering just above $45.  The credit market is 1-2 wider with the Investment Grade IG23 Index wrapped around 72¾ (+1¼).  The high beta energy names have widened out significantly more with credits like FCX, TCKBCN, RIG, WFT, and NBR gapping down in thin liquidity. One piece of encouraging news overseas, as the EU is indicating that their proposed bond-buying plan is on target and will only need minor adjustments to gain approval.

JP Morgan kicked off the bank/fin earnings this week with a miss attributed to a fall in fixed income revenue in the fourth quarter.  This is not entirely unexpected but no doubt the 1.19 a share result versus 1.31 estimate will put pressure on the name and stoke fears that the rest of the numbers due out this week in the sector will suffer a similar fate.  Wells Fargo also on the tape this morning coming in in-line with estimates at 1.02 vs. 1.01.  The good numbers seem to be driven by growth in lending and should offset the negative JPM headline.  Elsewhere Tesco PLC was cut to junk by S&P on the heels of the same cut by Moody's earlier in the week.  We believe this was largely priced in, and the company's $5bn revolver should offset new funding pressures created by the rating.

The primary market was active yesterday with a new PFD from chemical company CHS Inc..  While they printed a large deal, they left the pricing in the range at 7.5% and we saw significant retail demand.  Would expect this deal to do well and trade in line with their existings.   The So Cal Ed deal trading 1-2 better on the break, and the new 10yr for HCP was issue bid.  WTD issuance numbers at $11.25bn with at least 1 benchmark financial on tap for today - hearing Macquarie Bank 5yr. Economic Data:  MBA Mortgage Applications (7:00am) at 49.1%, Retail Sales (8:30am) -.9% versus -.1% expected, Import Price Index (8:30am) at -2.5% versus -5.2% expected, US Fed Beige Book (2:00pm) also due to be released today.


Municipal Bond Market
The tone in muni market remains strong this morning as we continue to chase treasuries.  The trend of small to medium size deals continue today with the pricing of $65mln North Little Rock, AR GOs and $26mln Sharon, MA.  

We expect to see money continuing to flow into the primary market as volume in the secondary remains weak.  Yesterday we saw an increase in BWs in the secondary but very little transactions.  

PR GO’s 8’s of 2035 have started to stabilize after volatile trading in December. 5mm+ of the GOs traded @ 86.50 (9.50%).  Bonds continue to trade in the $86-$87 dollar range after trading as low as $94.50 in early December.    

30 Day visible supply: $12.7bln

New Issue:
$65mln    North Little Rock SD, AR    2017-2043
$11mln    Peabody, MA    2015-2034
$26mln    Sharon, MA    2016-2035
$23mln    Virginia Beach, VA Beach Stormwater Project    2015-2039

TSY 10yr 1.893%