Monday, Jul. 20, 2015

Corporate Bond Market
Firm tone to the markets this morning with global equities all up.  Europe is reacting nicely to news that Greece will make its payment to the ECB and reopen the banks.  Euro Stoxx +.83%.  Stateside equity futures are up, DJIA fut +22, S&P Fut +2.  The treasury market is mixed with the long end outperforming and the curve flattening a bit.  The 10yr yield was last 2.34%.  Oil is off again today at $50.80, while Iron Ore trades up a bit in a much needed reprieve. Gold and all precious metals are trading off, touching a five-year low on the US interest rate outlook.

Credit spreads are unchanged to a touch tighter. IG is trading -.25 at 65/65.5.   Last week we saw $45bln in new issue bringing MTD issuance numbers to $72bln out of an estimated $115-125bln.  The bigger, more liquid new issues were definitely in demand into Friday with more buyers than sellers looking for CCO, RAI, etc.   We expect a few deals today making the primarymarket the focus of all activity.  UnitedHealth Group is already out with an 8-tranche, multi-billion dollar deal. Investors will be looking for a significant concession to outstandings.  Goldman Sachs priced an 8yr deal in Euros this morning that is trading about 5bps tighter.

Earnings continue to roll in and set the tone in the secondary.  This morning Halliburton reported a big beat as did Lockheed Martin.  Lockheed also announced an agreement to buy Sikorsky for $9bln.  Morgan Stanley is on the tape, coming in at .79c versus .74c expected.  That combined with the strong performance of the GS deal should underscore a firm tone in the sector.  On the economic data front: MBA Mortgage Applications (7/22), Existing Home Sales (7/22), Initial Jobless Claims (7/23), Manufacturing PMI (7/24), are due to be released this week.


Municipal Bond Market
Munis are unchanged this morning after firming up Friday.  We expect attention to be on the primary this week with $9.2bln scheduled versus $7.8bln last week.  The largest deal of the week will be $1.2bln NY dorms in which the retail order period will start on Tuesday.  There seems to be a substantial amount of money still sitting on the sidelines with very few options in the secondary, as a result we should see very strong demand for this week’s new issue.   30-day supply is stronger this morning with about $12.5bln on tap over the next 30 days versus $11bln yesterday.

Muni funds experienced outflows for the 11th straight week with $29.5mln in cash leaving funds versus $305mln last week.  The four-week moving average remains negative at -$409mln.  Interestingly, long term muni funds saw inflows of $34mln, after seeing demand mostly on the front end of the curve over the past few weeks.

PR paper did not show much of a reaction after missing a transfer payment last week.  PR Benchmark GO 8’s of 2035 continue to rally with bonds trading as high as $74 (11.30%) Friday compared to trading @ 72.75 (11.51%) earlier in the week.  We continue to see strong demand insured paper with some credits close to pre sell off levels.

30-Day visible supply: $12.4bln