Monday, Jul. 6, 2015

Corporate Bond Market
Markets opening weaker as Greek voters reject the latest austerity measures on the road to a potential bail out.  While global equities are all down (Euro Stoxx -1.66%, Nikkei -2.08%, DJIA Fut -122, S&P Fut -12.50) absent is any real sense of panic in the markets over the latest setback.  This is aided by the resignation of Greek Finance Minister Yanis Varoufakis, who left in order to smooth further talks.  The treasury market is rallying across the curve with the 10yr yield at 2.29%.  Commodities are opening down with oil trading at $54, gold off .4%, and Copper off 4.2%.   Credit is opening wider as well.  The Investment Grade Index is +2⅝ at 70.5/71 to start.  Cash anywhere from 1-5bps wider depending on sector.

In credit news, fund flow data from last week was a non-event.  Corp-Investment Grade Funds reporting net outflows of $0.366bln and High Yield funds reported $0.621bln of inflows.  The Pimco Total Return Fund saw another $3bln in redemptions, underscoring the general feeling that the asset management giant has not recovered from Bill Gross's departure.                                                                                                                  

Secondary flows have been light on the desk, though there is a sense that investors are opportunistically looking to add on any significant weakness.  We continue to see hedge funds trading the Puerto Rico headlines in the corporate market via the AGO bonds.   On the primary front, we would expect issuance to pick up this week after a slow start to July.  Estimates for the week are $10-15bln with at least two index deals on tap for this morning.  On the economic data front:  Markit US Composite PMI (9:45am), Markit US Services PMI (9:45am), ISM Non-Manf Composite (10:00am) are due to be released today.


Municipal Bond Market
Munis are stronger this morning as we continue to look to the treasury market for direction.  The focus this week will be on the new issue market with about $5bln on tap versus $3.5bln last week.  We should strong demand for all deals pricing this week as July money continues to sit on the sidelines.    30-day supply is stronger today with $10bln on tap over the next 30 days versus $9bln Friday.

Muni funds reported the largest cash outflow of the year with $1.2bln leaving funds.  This marks the 9th straight week of outflows and normally would put some pressure on the market.  However, we continue to see substantial amounts of interest and principal payments from July on the sidelines waiting to be put to work which should offset such large outflow numbers.

Puerto Rico debt continues to firm up after selling off hard early last week.  Insured paper has bounced back the most trading up almost 15pts in some instances.   We continue to see strong demand for insured paper versus non insured.  Non insured paper strengthened as well with PR benchmark 8’s of 2035 trading as high as $71 (11.8%) compared to trading as low as $64(13.10%) on Monday.

30-Day visible supply: $9bln