Monday, Jan. 26, 2015

Corporate Bond Market
The equity markets this morning are preoccupied with the political situation in Greece, where the anti-austerity Syriza party won the election and vowed to end budget cuts and other measures.  This news has led to a global risk-off mentality and stocks are mixed as a result.  DJIA Fut -54,  S&P Fut -5.10, US Treasuries rallying with the 10yr last at a 1.79%, and oil last at $45.  The IG index had closed the week at the tights (67½/68) as investors looked to get long credit despite it trading rich to intrinsics, however I would look for some of this to be unwound as equities sell-off.  IG23 last slightly wider at 67¾/68¼. Cash spreads are probably unchanged to +1bp on light trading to start. We were expecting a busy week to end the month, both primary and secondary, but as the blizzard bears down on New York and New England it remains to be seen how active the market will be.

In credit news there are a number of market moving headlines.  Rock-Tenn announced a merger with MeadWestvaco Corp giving the company a combined net sales number of $15.7bn and a net savings of $300mm a year in synergies.  Beleaguered Cliffs Natural Resources announced that they will stop paying their dividend.  This will give Cliffs $92mm in extra free cash to pay down debt per year.  Good news for bond holders and as we start to see levels we will update you on movement.  Elsewhere AT&T has agreed to acquire Nextel Mexico for just under $2bn, and Axis Capital and PartnerRe are merging for a combined entity value of $11bn. Earnings season continues with Microsoft and Zions due out this afternoon. So far of the S&P companies that have reported , 77% have beat expectations after analysts reduced projections.

Friday was quiet on the new issue front.  $15-20bn is expected this week with a possible benchmark financial deal on tap for today.  Quiet on the economic data front today with most of the action later in the week when GDP, U of Mich, FOMC all due out.

Municipal Bond Market
Munis are unchanged to start off the week.  Once again, the focus will remain on the new issue market with about $6.5bln scheduled.  The highlight of this week’s calendar will be $286mln Cook and Dupage County GOs along with $1bln PA St GOs.

In credit news, Atlantic City saw its rating cut by Moody’s to Caa1 from Ba1, after Governor Christie appointed an emergency manager.  We saw a substantial increase in AC debt out for the bid by customers after the announcement.  GO 5’s of 2021 were weaker on Friday, trading as low as $97.40 (5.30%) after trading around $103 (4.48%) for most of January.

Muni funds continue to see huge inflow numbers as $771mln poured into funds this week compared to $689mln during the previous week.  Debt issuance hit a 5-week high this week with $9.8bln being priced.  We continue to see cash flow into the muni market with verious places to put money to work.  Buyers seem to be hesitant to transact and the secondary market has been favoring the primary lately.

Benchmark GOs continue to trade slightly weaker. Bonds traded around $84.00 after trading as high as $85.50 last Friday. We have seen bonds trade in the $85-$87 range over the past two weeks.

30 Day visible supply: $10.10bln

New Issue:
Competitive: $1.9B
Negotiated: $4.4B

$831mln    Utah Transit Authority    Aa2/AAA
$38mln     Kentucky State Property and Building Commission    Aa3/A+
$286mln   Cook and Dupage County School Districts, IL 

UST 10yr: 1.818%