Friday, Jan. 30, 2015

Corporate Market Comment
Stocks are set to end the month on a down note with equity futures firmly in the red:  DJIA Fut -134, S&P Fut -14.  According to Bloomberg, the S&P 500 is trading at about 16.9 times projected earnings of member companies versus an average of 14.3 times over the past five years.  Treasuries are rallying this morning, echoing that risk-off mentality in equities, with the yield on the 10yr last at 1.71%.  Gold traded up 0.5% and oil traded up slightly to $44.95 last. January marks the best start to any year on record for bonds as central banks globally continue to cut rates and add stimulus.  Credit markets are opening marginally weaker with the IG23 index +¾ at 68½/69, and cash +1-2bps.  Fund flow data: Corp- Investment grade funds reported net inflows of $2.866bn, and High Yield funds reported net inflows of $2.765bn.  Money Market funds reported net outflows of $271mln.

In corporate news, Amazon is up 10.75% in pre-market trading on monster earnings numbers.  Analysts were anticipating EPS of 0.17 and Amazon reported 0.45.   Google also posted strong numbers with 15% revenue growth.  I would expect bonds in both names to trade tighter this morning.  Lastly, Petrobras is making headlines as Moody's downgrades their ratings to Baa3 and keeps them on review for a further downgrade.  This brings them in line with S&P and should not be unexpected.

The primary market was active yesterday with a four-part REIT deal from Select Income Realty (SIR).  The deal traded 5-10bps tighter in the gray despite the book being slow to build.  We saw mostly follow on buyers.  Praxair also came to market with a 10yr, 30yr, and short floater issue.  It was relatively quiet but the 10yr traded 5-6bps better into the close.  On the high yield front, Micron Tech and Calpine both priced 10yr deals.  Friday's are traditionally quiet on the new issue front.  MTD new issue number stands at $81bn.  In secondary trading investors were better buyers of risk for the most part.  There were a number of month end BWICs and OWICs as rebalancing took place.  Would expect that to continue today.  Economic Data:  Employment Cost Index (8:30am), GDP Annualized QoQ (8:30am), Personal Consumption (8:30am), GDP Price Index (8:30am), Core PCE QoQ (8:30am), Chicago Purchasing Manager (9:45am), U of Mich Sentiment (10:00am) are due to be released today.


Municipal Bond Market
Munis are slightly stronger this morning walking in after feeling mostly unchanged yesterday. New issue is non-existent today with the majority of this week’s deals already priced or postponed until next week. 

Muni funds reported strong weekly inflows once again with $892mln in new cash.  We continue to see huge amounts of money pouring into the muni market week after week.  We expect buyers to continue to focus primarily on the new issue market with limited attention on the secondary.

In credit news, PREPA is asking creditors for a three month extension to restructure operations.   Originally, PREPA had planned to submit a plan to restructure $8.6bln of debt by March 2nd.

PR Benchmark GOs were unchanged on the news and continue stabilize in the $84.50 (9.76%)-$85(9.63%) range after some sloppy trading over the past few weeks.   5000m bonds traded Tuesday @ $84.85 (9.719%) after trading as high as $85.50(9.63%) last week.  

30 Day visible supply: $13.27bln

New Issue: no notable deals today.

UST 10yr 1.772%