Friday, Aug. 7, 2015

Corporate Bond Market
US Equities are unchanged to down slightly ahead of the 8:30 payroll data: DJIA Fut -28, S&P Fut -3.25 as New York walks in.  The survey calls for a 225k increase in Nonfarm Payroll, and no change in the Unemployment rate at 5.3%.  Treasury activity has been muted leading into the announcement, the 10yr is holding steady at 2.216%.  Global equities were mixed overnight.  Asian stocks found some much needed relief as Chinese investors started to price in the possibility of even more government intervention to stop the market rout.  European stocks were off as the BOE cancelled their November rate hike. Euro Stoxx -.46%,  the FTSE 100 -.10%.  Credit had a tough session yesterday in line with equities.  The Investment Grade Index finished the day +2.5, mostly driven by weaker oil. It's opening up another +¼ at 74.5/75.  We didn't see many buyers in cash except for some opportunistic short covering.

WTD we are at $17.5bn in Corp New Issue.  We would expect today to be quiet on that front given it's a summer Friday.  The real winner of the week was the two-tranche RBS Coco which continues to trade up 1-2pts+.  It still looks like good value to us, particularly versus the RBS E outstanding pfd.  The Citi 5.95 nc5yr hybrid continues to lag , trading around 99.75-100.   We saw some action in the new Airgas 5yr yesterday that came at +148 and traded 2-3bps tighter.  In credit news, looks like Capital One is in talks to acquire GE's healthcare finance unit.  FUND FLOWS:  for the week ended 08/05 Corp-Investment Grade funds saw net outflows of $0.74bn and High Yield Funds reported net outflows of $1.2bn. Money Market funds reported net inflows of $20.309bn. Have a great weekend.


Municipal Bond Market
Munis are unchanged this morning as the market awaits this morning’s release of July payrolls.  We expect to see extremely light volume after the number with funds facing outflows and new issue scheduled to be only about $5bn.   30-day supply is slightly stronger this morning with $6bn on tap over the next 30 days versus $9bn yesterday.

Municipal funds reported their second week in a row of redemptions with $308mln in outflows.  Funds have seen outflows in 16/32 weeks this year.  HY specifically has been hit the hardest with the current turmoil in both Puerto Rico and Chicago.  HY funds this week reported $57mln in outflows. We could see some choppy trading today with the payroll numbers and funds having to meet requests for cash.

PR volume remains extremely light as the market attempts to digest what is next for the commonwealth.  We continue to see massive amounts of items out for the bid with almost nothing trading.  Liquidity is incredibly weak in Puerto Rico paper right now with only about 5 bidders at most on BWs.  Puerto Rico GO 8’s of 2035 continue to trade below $70 with about 5mm bonds trading @ 69.75 (12.03%).  We expect to see light trading in PR paper again with very little appetite in the market for PR paper.

30 Day visible supply: $7.8bln