Monday, Jun. 22, 2015

Corporate Bond Market
Global equities are flying on optimism that European officials are on the brink of a deal with Greece on bailout terms.  Euro Stoxx up 2.83%, Nikkei +1.25%, Hang Seng +1.20%.   US Equity futures are following suit with the DJIA Fut +118, and S&P FUt +15.  Treasuries are selling off with the 10yr last at 2.327%.  The credit market is tighter across the board with the investment grade index between 1.5 and 2bps tighter, last at 66.25/66.75.  Though reports conflict on exactly how imminent a deal is, the market seems to be reacting positively to comments from Greek Prime Minister Tsipras that they have come to the table in hopes of striking a financially sustainable agreement.  Time is of the essence as a 1.6bln Euro payment is due to the IMF in just eight days.

For the week ending 06/17, Lipper is reporting net outflows of $0.161bln in corporate investment grade funds, and $2.889bln in net outflows from high yield funds. In credit news, there is action in the healthcare sector as Cigna Corp rejects Anthem Inc's $47bln takeover bid and Aetna makes a takeover offer for Humana.  Not to be outdone, UnitedHealth is in the fray with a takeover approach of Aetna.  If these deals are completed it would consolidate the sector to 3 big players from 5.  We expect the primary market to heat up again this week with at least three large deals expected today.  Last week saw $15bln in new corporate issue, out of estimated $80-90bln due for the month.  We are expecting this week to bring $20-25bln.

On the economic data front:  Chicago Fed Nat Activity Index (8:30am), Existing Home Sales (10:00am), Existing Home Sales (10:00am) are due to be released today.


Municipal Bond Market
Munis are weaker this morning after rallying for most of last week.  We saw extremely strong demand in the front end of the curve; however, we continue to see very few buyers of long end paper.  The focus this week will be on the primary with about $8.7bln in deals scheduled.  Highlights of this week’s calendar include $940mln MA GOs, $290mln FirstEnergy Nuclear Generation Corp, and $273mln Temple University bonds.   30-day supply is stronger this morning with about $12.4bln on tap over the next 30 days, versus $10bln yesterday.

Muni funds reported outflows for the 7th straight week with $420mln of outflows versus $411mln in outflows during the previous week.  New money continues to flow into the primary and continued outflows should put some pressure on the primary market.

PR debt remains unchanged as we approach the July 1st payments.  We continue to see below average volume in the benchmark and very few items out for the bid in all PR names.  Benchmark GOs Bonds continue to trade around $80 (10.42%) on very few transactions.

30-Day visible supply: $12.4bln