Wednesday, Aug. 5, 2015

Corporate Bond Market
Global equities up for the most part overnight, buoyed by a slew of good earnings reports yesterday as well as decent price action in the beleaguered commodities markets.  The one exception was the Shanghai Composite,  which remains under pressure, closing -1.65% (Euro Stoxx +1.24%, Nikkei +.46%, Hang Seng +.44%).  So far US Equities are also in the green with DJIA Fut +66, S&P Fut +13.5.  Treasuries are selling off across the curve with the 10yr last at 2.234%.  We are seeing this back up bring out the floater buyers who have been active in that space.  Credit is better this morning as well despite the significant amount of supply we've seen in the space.  The Investment Grade Index is -.75 to start at 71.25/71.75.  Cash spreads are 1-5bps better depending on the sector, with higher beta metals/mining at least -5bps.

We saw $6.65bln in new issue hit the tape yesterday, with most of the deals pricing aggressively tight of initial price talk.  In a difficult market with a lot of paper to digest the net effect has been many deals trading wide of issue.  We have residual sellers of some of the weaker deals, in particular CL and PM.   The new HSBC 3yr and 5yr deals are both trading well, as is the HealthSouth tap.  The new XEL is also trading well, at least 3bps better on the bid side.  So far this morning there is a new COCO deal from RBS.  Looks like they are talking a PNC 5yr in the 7.75% area, and a PNC 10yr at 8.25%.  We are hearing that the deal is already significantly overly subscribed and have seen gray markets +.375 at least. Citigroup has also announced that they are doing a new Perp-NC 5yr, $1000 par, initial price talk 6.125%.  We would expect that to do well. Away from that we are expected a few other deals today as well, though no others have formally announced yet.  WTD we are at $15.55bln out of an estimated $20-25bln.

In credit news, more earnings out this morning.  No real surprises yet with nice beats by DISH, Motorola, Time Warner, and Chesapeake to name a few.  CHK bonds and CDS both trading better on the report.  SocGen also put up nice numbers.   Elsewhere Baxalta reported they are rejecting an unsolicitedoffer from Shire.  The name has been very active in secondary trading.

On the economic data front:  MBA Mortgage Applications (7:00am) came in at 4.7%, ADP Employment Change (8:15am) came in at 185k versus 215k expected, also Trade Balance (8:30am), 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 unchanged this morning after a mixed trading day.  We continue to see low muni volume due to the combination of a slow summer month and volatility in Puerto Rico.  Focus will be on the primary today with Wednesday being one of the larger days on the new issue calendar.  Today’s calendar is highlighted by about $1bln in MN paper.  30-day supply is slightly weaker this morning with $9bln on tap over the next 30 days versus 10.8bln on Monday.

PR volume remains extremely light as the market continues to wait for direction.   Liquidity is extremely scarce with some BWs receiving no bidders. Puerto Rico GO 8’s of 2035 continue to trade below $70 with 5mm bonds trading @ 69.65 (12.05%).  We expect to see volatile trading in PR paper again today with very little liquidity.

30 Day visible supply: $9.6bln