Tuesday, Aug. 11, 2015

Corporate Bond Market
Tough overnight session for global equities after China's move to devalue the yuan sent equities lower.  The central bank cut its daily reference rate 1.9% in an effort to combat the economic slowdown plaguing the region.  The Nikkei closed -.42% and the Hang Seng -.09%.  Europe traded down as well despite the news that Greece reached an accord with creditors on the terms of a third bailout.  Euro Stoxx off -1%.   Stateside equity futures are opening up lower as well.  DJIA Fut -107.  S&P Fut -11.25.  The treasury market is rallying across the curve with the 10yr last at 2.168%.  Credit is definitely softer with spreads +2-5bps depending on sector.  Yesterday saw a monster $14bln in supply which is still being digested in the secondary.  The Investment Grade Index was last +1.5 at 75/75.5.

Most of the deals we saw price late last night were issue bid to maybe -1bp.  The outperformer was the HSBC 10yr sub deal which traded 5bps tighter in the gray.  The new BACR 30yr deal still looks well priced to us at +235 but the market will have to wait as flippers continue to punt their positions, in many cases un-hedged and buoyed by the treasury rally to sell at wider spreads.   Owens-Brockaway is on the tape issuing an 8yr and 10yr today.  That is the only deal we've seen so far though BNP is due to bring a AT1 deal sometime this week.

In the secondary we were active in the higher quality high yield and crossover names with a few client buyers.  Google announced this morning they are forming a holdco by the name of Alphabet that will be publicly traded and keep their other companies as subsidiaries. 

On the economic data front:  Wholesale Inventories MoM at 10am.


Municipal Bond Market
Munis are stronger this morning after a slight sell off to start the week. Secondary volume was light as the market awaits this week’s $5.5bln in new issuance.  Attention will be on the primary today with the pricing of a few of the weeks larger deals.  The most notable deal of the day will be $180mln Georgia Power Projects with Wells Fargo.  30 day supply is unchanged this morning with $8.7bln on tap over the next 30 days versus 8.6bln on Monday.

In PR news, PRASA released bond documents for a potential $750mln new deal.   There is no time frame set and we are awaiting more color.  A new deal is positive news for all PR credits and should provide PRASA with a little bit more credibility coming into January payments.  Benchmark GOs continue to stabilize right around a $70 dollar price; 5mm bonds traded Monday @ $70.25 (11.90%).  Liquidity continues to remain scarce in PR paper.  We continue to see support in certain credits.

30-Day visible supply: $8.6bln