Monday, Jun. 29, 2015

Corporate Bond Market
Global equities take a dive, as the markets face the Monday morning reality of a probable Greek exit from the Euro zone.  As emergency aid to the country is now frozen, a default on tomorrow's debt payment seems likely.  Banks in Greece are now closed for six business days to avoid a possible run.  Euro Stoxx is now down 3.78%, Asian equities down between 2.25% and 2.85%.  Stateside DJIA Fut - 184, S&P Fut -23.  Treasury market is rallying with the 10yr last at 2.362%. Oil is roughly unchanged at $58.25.  The credit markets are wider on the news as well.  The Investment Grade Index is +2.75bps to start at 69.75/70.5 last.  Cash is probably 5-10bps wider depending on the sector, with higher beta sectors 15-20bps wider.

Last week we saw $15bln in new issuance hit the corporate market.  With this week being a short holiday week we are only expecting $10bln this week.  Hearing there is a benchmark industrial on tap for today but with all the volatility who knows.  The larger recent deals like Baxalta and Heinz continue to trade well despite the weaker tone.  We would expect better buyers on any significant sell off.  Very light day for economic data with just  Pending Home Sales (10:00am), Dalls Fed Manf. Activity (10:30am) are due to be released today.


Municipal Bond Market
Munis feel firmer this morning after trading significantly weaker on Friday.  Muni new issuance will be extremely light this week with about $3.5bln in new deals due to the shortened holiday week.  We expect to see the market focus heavily on new issue and the secondary early in the week with demand fading as we approach the holiday weekend.  30-day supply is lighter this morning with about $7bln on tap over the next 30 days versus $9bln yesterday.

Muni funds posted outflows for the 8th straight week with $105mln in outflows versus $420mln last week.  We have seen fund outflows in 11 out of 26 weeks this year. This week’s fund flows number is minimal and should not have much of an impact on the market.

Puerto Rico debt is extremely volatile this morning after the common wealth warned that its debt is not payable.  We are seeing the biggest move the most liquid non insured cusips this morning.  PR Benchmark GO 8’s of 2035 are trading around $70 (11.984%) versus trading as high as 84.25 (9.80%) in the beginning of June.  We expect to see increased selling in non insured paper with investors holding on to any insure pieces.

30-Day visible supply: $7bln


Constant Maturity Swap Rates (CMS) 
2yr     0.901
5yr     1.788
10yr   2.466
30yr  2.935

30's-5's     1.147
30's-2's     2.034