Wednesday, Jul. 15, 2015

Corporate Bond Market
Fairly firm tone this morning in the credit markets despite the significant amount of supply that priced yesterday afternoon.  The Investment Grade Index is unchanged to a touch wider at 67.25/67.75.  Cash spreads are also unchanged after drifting wider throughout yesterday's session.  Elsewhere global equities are all up, Euro Stoxx +.21%,  Nikkei +.38%.  US equity futures are up small with DJIA Fut +6, S&P Fut +1.25.  Yellen is on the tape this morning reiterating that a rate hike this year is likely, and reassuring the market that the Fed sees no liquidity problems in the bond market. The treasury market is selling off small in response with the yield on the 10yr now 2.412%.   Oil is off a bit this morning at $52.95 last.

The primary market saw large deals yesterday from Kohls, Pepsico, Santander (SOV), JPM, USAA, and Nationwide, marking the first significant day for issuance in a few weeks.  All told, $12.35bln priced yesterday with most deals performing well and trading tighter on the break.  So far this morning we have a new deal from Wells Fargo.  Post their earnings beat yesterday , they are coming to market with 5yrs and 12yrs.   This morning Bank of America beat , coming in at .45 versus .36 expected.  Blackrock also beat and US Bancorp and PNC reported in line with expectations.

Economic data: MBA Mortgage Applications (7:00am), PPI (8:30am), Empire Manufacturing (8:30am), Industrial Production (9:15am), Capacity Utilization (9:15am), US Fed Reserve Beige Book (2:00pm) are due to be released today.


Municipal Bond Market
Munis are unchanged this morning after rallying yesterday.  We saw strong demand throughout the curve as buyers put money to work in the both the secondary and primary market.  In the primary, we saw extremely strong demand during the retail order period for the Cal State University deal with 5’s of 2035 priced @ 3.38%.   The focus today will be on the primary with the pricing of one of the weeks more interesting deals, $1bln Chicago GOs.  30-day supply is lighter this morning with about $12.3bln on tap over the next 30 days versus $14bln yesterday.

Puerto Rico debt continues to rally as buyers return to the market.  We saw strong demand in the benchmark 8’s of 2035 after not much clarity was in given in Mondays meeting with creditors.  Most of the rally should be credited to positive news about PRASA potentially paying in full.    PR Benchmark GO 8’s of 2035 traded as high as $72.50 (11.55%) yesterday.  Insured paper continues to firm up with some names trading around levels seen before the selloff.

30-Day visible supply: $12.3bln