Wednesday, Jun. 17, 2015

Corporate Bond Market
Focus today will be on the Fed meeting, though the market seems to be in agreement that we won't see any unexpected rate hike at this session.  The decision is due out at 2pm.  Ahead of that announcement global equities are mixed.  Europe continues to trade down on fears that the Greek situation is far from a resolution.  Asian equities trading up.  US Equity futures up to start with the DJIA Fut +31,  S&P Fut +2.5.  The 10yr treasury last at 2.324%.  Oil up again at $61 last.  The credit market feels firm this morning, with cash spreads unchanged to 2bps tighter.  The Investment Grade Index is unchanged at 69.5/70.

The primary market yesterday was active with new deals from BRKHEC, CAH, RDN and UNP.  Trading in the new issues was quiet but they were all 1-2bps tighter.  Most of the follow on buying we saw was in the BRKHEC, which is currently -3bps bid.  On the preferred front there was an interesting new issue from Valley National Bancorp.  The 6.25% fixed to float structure was well received from retail who like the name and are always looking to add DRD/QDI to the portfolio. We are not expecting any new issues today with the Fed on tap.  WTD we are at $3.27bln out of an estimated $15bln.

In credit news, Fedex and Oracle both reporting today.  Fedex is forecasting a profit number ahead of analyst estimates as they realize their cost cutting plan.  Should be positive for the credit.  Elsewhere, Allergen is on the tap buying Kythera Biopharmaceuticals for $2.1bn.        


Municipal Bond Market
Munis are unchanged this morning after rallying again on Tuesday.  We continue to see extremely strong demand in the secondary, specifically in the IG space within 15 years.  The amount of items out for the bid continues to decline due to the scarcity of bonds.  It is very difficult to find high grade paper in the secondary after last week’s surge in demand and we should see customers paying up for bonds if this persists.  In the primary, $565mln NYC HDC sustainable neighborhood bonds were met with strong demand.  4.20% of 2040 priced at par.  30-day supply is unchanged this morning with about $12.bln on tap over the next 30 days.

PR debt continues to be extremely quiet as we approach July 1st payments.  Volume in PR Benchmark GO 8’s of 2035 remains light with very few trades over the past week.  Bonds are starting to trade below $80 (10.42%) again after trading as high as  $83.00 (9.95%) in early June.  2000m traded yesterday @ $79.875 (10.41%).

30-Day visible supply: $12bln


Constant Maturity Swap Rates (CMS) 
2yr     0.969
5yr     1.821
10yr   2.422
30yr  2.842

30's-5's     1.021
30's-2's     1.873