Wednesday, Feb. 4, 2015

Corporate Bond Market
US equity futures down as New York walks in, with DJIA Fut -32, and S&P Fut -7.1.  Oil gave up some of yesterday’s gains hovering around $51.38 this morning, as the US reports that stockpiles rose to the highest levels since 1982.  Overseas Asian equities are all up, with the Chinese Central Bank cutting reserve rations,  and European equities trading off.  Credit marginally weaker to start with the IG23 index +⅝ at 66⅝/66⅛, and cash unch to +2 depending on sector.  Yesterday saw better buying across the board with a monster rally in the energy and metals and mining sectors that squeezed shorts and left IG23 -3½ on the day.   Some retracement today with oil off a bit not unexpected.  US Treasuries continue their sell-off with yield on the 10yr last at 1.815%.

A number of market moving credit headlines this morning.  Staples has agreed to buy Office Depot for $11/share in a deal valued at $6.3bn.  Early indicators are that the combined entity will create a retail chain worth $35bn in revenue and be rated mid BB.   In Emerging Market news, the CEO of Petrobras has stepped down after a corruption scandal cost the company billions in market value.  The board will meet Friday to elect a replacement.  No levels on the bonds yet but we will update them as and when.  General Motors is on the tape this morning with 4Q profit beating estimates at 1.19 versus .83 expected.  Clearly they are benefitting from low interest rates and low gas prices as their sales continue to climb.  We have been fans of being long GM paper in general on possible Moody's upgrade.  GM bonds will trade better today and CDS is already another 5bps tighter. Strong earnings numbers this morning also being reported out of Merck, Boston Scientific, Whirlpool, and GlaxoSmithKline to name a few.

The new issue market yesterday brought deals from GATX Corp (5yr and 10yr), IBM (3yr),  M&T Bank (5yr and 10yr), and Northrop Gruman (30yr).  All performed well but most of the follow on buying we saw was in the M&T deal where investors scrambled to add to small allocations of the Senior Bank paper.  This brings week-to-date new issue to $20bn.  We expect more deals today.  On the economic data front:   MBA Mtge Apps this morning came in at 1.3% versus -3.2% prior,  ADP Employment Change (8:15) survey 223k, PMI numbers (9:45),  ISM Non-Manf (10am) survey 56.4.


Municipal Bond Market
The tone in muni market is unchanged this morning after an extremely weak day of trading yesterday as munis chased Treasuries higher.   Today’s primary looks to be one of the lighter days of this week’s calendar with $39mln Mercer county NJ as one of the more notable deals.    We should see some money flowing into the secondary market today after yesterday’s weakness and todays light calendar.

PR Benchmark GOs saw more volatility than usual yesterday on a weaker muni market.  We saw block trades ranging from $83.875 (9.84%) to $85 (9.70%) throughout the day.  Benchmark GOs have seen a significant decline since trading in the $85.50 (9.63%)-$88(9.32%) range for most of January.

30 Day visible supply: $7.24bln

New Issue:
10.5mln    Delsea, NJ Reg'l HS District (Glousecter County)    2015-2029    /AA-
39mln    Mercer County, NJ County Improvement Bonds    2016-2030    Aa2 /AA+
9.5mln    New Jersey Env Infrastructure Trust *AMT*    2015-2025    Aaa/AAA
21mln    Barnstable, MA     2016-2035     /AAA
1.5mln    Broadalbin-Perth Central School District, NY    2015-2029     /AAA

UST 10yr 1.780%