Friday, Jun. 5, 2015

Corporate Bond Market
The focus this summer Friday will be on the payrolls data due out 8:30am and any clues it might give to the timing of US interest rate hikes.  Equity futures are down to start with DJIA Fut -33 and S&P Fut -3.5.  Global equities all down in the overnight session capping off a tough week for stocks. Treasuries are selling off again, with the yield on the 10yr at 2.339% before the numbers.  On the flipside, commodities continue to show signs of life with Oil rebounding on headlines that OPEC will maintain its current output ceiling.  The credit markets are opening a bit weaker with IG +⅜ at 66⅛/66⅝, the cash market roughly 1-3 wider.  We continue to see Greek headlines as a near-term source of volatility in the coming weeks.  Lipper data for the week ending 06/3/15 showing net inflows to all taxable bond funds of $1.24bln, the net inflow number for investment grade corporate bond fund was .232bln and .601 in inflows into high yield funds.                                                                                                                      

This week saw  $18bln in supply in the corporate market out of the $80-90bln that is expected for the month of June.  Next week should be another active week with syndicate desks predicting $25-30bln to come.  We have seen a lot of the traditional new issue flippers get burned with deals being brought at the tights and not a lot of follow on demand for paper.  With the exception of a few deals, the PCP and GWW in particular, the recent new issue market feels for sale.  We have also seen significant pressure on the higher beta sectors with names like MTNA, Alcoa, and CHK struggling to find a bid.  The recent sell off in the hybrid market though seems to be abating with a lot of the hardest hit issues finding support at these lower levels.

In credit news Vodafone confirmed it is in talks with Liberty Global to exchange assets which should be a net positive for the credit.  Cardinal Health making headlines as it agrees to buy the Harvard Drug Group for $1.15bln , they have indicated they will fund the acquisition with cash and new debt. Have a great weekend and look for the market to re-rack after 8:30.


Municipal Bond Market
Munis are slightly weaker this morning. Outflows from municipal bond funds continued for a fifth straight week, increasing to $380.7mln from last week’s $205.3mln.  The current 10-yr benchmark (Bloomberg AAA Benchmark Yields) rose to 2.34% from 2.32% yesterday.

In PR credit news, PREPA continues to sort out its finances while closing in on an agreement with creditors. The extension could be agreed to today and would last 2 weeks.  PREPA also owes investors $416mln of principal and interest on July 1st; most bonds of that maturity date carry bond insurance.

In Chicago, high demand pushed down yields on $111.7mln of sales tax revenue refunding bonds.  Yields on bonds due in 2034 with a 5% coupon dropped to 4.62 from 4.67.  $464mln in orders were placed.

30-Day Supply: $11.27bln.