Thursday, Aug. 6, 2015

Corporate Bond Market
Global equities were mixed overnight.  Chinese stocks continue their decline despite unprecedented government intervention.  The Shanghai Composite finished the session -.89%, with the Hang Seng following suit at off -.57%.  The Nikkei traded up +.24% and European stocks were mixed across the board.  There is still pressure on energy stocks as oil retreated again this morning, touching the lowest levels in four months.  Stateside DJIA Fut +22, and SYP Fut +3.25 to start.  Focus in the rates market is on tomorrow’s Non-Farm Payroll Data.  The10yr yield was last at a 2.272%.   According to Bloomberg, traders are currently pricing in a 48% probability of a rate hike in September.  Credit is a touch weaker to start.  The Investment Grade Index is +.25 at 72/72.5.  Cash spreads are probably unchanged to start.

Yesterday's session saw CHK under extreme pressure following their earnings report.  The bonds traded down 4-5pts and the CDS eventually went to points up front at the end of the day.  The primary market was dominated by a two tranche RBS Coco deal, nc5yr and nc10yr.  The deal priced at7.5% and 8% respectively with large back end floating rates and was extremely well received.  It traded up 1-2pts in the gray immediately.  Elsewhere Citigroup did a 5yr fixed to float hybrid at 5.95%.  Investors were disappointed they didn't stick to their initial 6%+ talk and the deal was under pressure offered at par and trading at a discount in the gray.   On tap for today so far there is a $25 par coming from Wells Fargo Real Estate.  Initial price talk on that deal is 6.375%.   We are also hearing there is a utility in the works but we haven't seen details.

In credit news,  CF Industries and OCI have agreed on an $8bln deal.   The deal includes $2bln in net debt.  Bill Ackman is on the move again , this time taking a $5.6bln stake in Mondelez to push for a Food deal.  We would expect spreads to be wider in the name.

On the economic data front: Initial Jobless Claims (8:30am), Continuing Claims (8:30am), Bloomberg Consumer Comfort (9:45am) are due to be released today.


Municipal Bond Market
Munis are unchanged this morning after a weak performance yesterday.  Volume continues to be extremely light with a low percentage of BW items trading.  We continue to see buyers putting money to work in the primary due the lack of supply in the secondary market.  30-day supply is significantly weaker this morning with $6bln on tap over the next 30 days versus 9bln yesterday.

PR volume remains extremely light as the market continues to digest Mondays missed payment on its PFC debt.   Liquidity has been extremely scarce with few items actually trading. Puerto Rico GO 8’s of 2035 continue to trade below $70 with about 10mm 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: $6bln