Wednesday, Jul. 1, 2015

Corporate Bond Market
Very different tone this morning walking in, with global equities all up significantly and US stock futures following suit.  The market is reacting to headlines that Greece is ready to compromise with creditors.  It seems we are still a long way off from Greece being out of the woods but Euro Stoxx is up 2.5%,  DAX is up 2.25%,  DJIA Fut +147, S&P Fut +15.5.  Treasuries are selling off with the yield on the 10yr now up to a 2.40%.  Oil remains range bound at $58.60.  Credit markets also having a strong start with cash spreads 1-10bps better depending on the sector.

Main headline this morning in credit is Ace's announcement that they will be buying Chubb.  The deal is priced at $28.3bln. Not much price action in the bonds to report yet.  In secondary action we have been active in AGO paper on the back of turmoil in the Puerto Rico Muni market.  We traded significant volume of the 5% 2024 anywhere from +250 to +300 to the 10yr.  We like the story and are buyers on weakness.  The primary market remains a non-event this week with the turmoil in the markets and the holiday looming.  Look for new issue to pick up next week on our way to the $60-70bn that is anticipated for the month of July.

On the economic data front: MBA Mortgage Applications (7:00am) came out at -4.7%, ADP Employment Change (8:15am) came out at 237k versus 218k expected, Markit US Manufacturing PMI (9:45am), Construction Spending MoM (10:00am), ISM Manufacturing (10:00am), ISM Prices Paid (10:00am) are due to be released today.


Municipal Bond Market
Munis were mixed yesterday as the market continued to focus on Puerto Rico during this shortened holiday week.  We saw retail buying throughout the curve as we approached month end, however, institutional customers continued to buy higher quality names in the front end of the curve.   Today’s focus will be on PR and the secondary market with the majority of this week’s new issue wrapped up.   30-day supply is weaker as we head into summer with $5.5bln on tap over the next 30 days versus $7bln yesterday.

Puerto Rico debt firmed up on Tuesday after a strong sell off to start the week.  We continued to see light volume, however, the amount of bidders and strength of bids increased throughout day.    PR Benchmark GO 8’s of 2035 traded around $64 (13.1%) in early trading but firmed up to about $68 (12.34%) to close day.   We expect to see all PR paper firm up today if all July 1st payments are made as expected.

30-Day visible supply: $5.5bln