Tuesday, Sept. 8, 2015

Corporate Bond Market
Overseas equity markets are higher for the second day in a row and futures signal that shares in the US should rebound as trading resumes following the Labor Day holiday (DJIA+277 and S&P +34.75).  Markets were encouraged by industrial metals rallying on speculation that a turn-around in China will stimulate demand. Commodities have strengthened and US Treasuries are off this morning with the 30-year down 25/32s at 2.925%.  Oil is down $0.64 this morning to $45.42/bbl.  Credit is opening up better with the IG index -3 at 80 ¼ /80 3/4.

It was quiet on the corporate front over the long weekend. It appears that GE’s $17bln acquisition of the power business of France’s Alstrom is set to win European Union approval today.

The IG new issue market is set to return to action this week with $25bln of issuance expected.  This morning Goldman Sachs is selling a benchmark 5 yr fixed and/or floating with the price talk at +140 bps.  Mitsubishi and Home Depot have also announced deals this morning.

Economic Data: Labor Market Conditions (10;00am) and Consumer Credit (3:00 pm).


Municipal Bond Market
Munis are weaker this morning after a quiet trading day Friday ahead of the holiday weekend.  New issuance will be light this week with only $3.7bln scheduled during the shortened week.  The highlight of this week’s calendar will be $750mln North Texas toll way authority. We expect to see weak demand across all sectors of the municipal market as funds continue to face substantial outflows of cash.   Muni funds reported $585mln in outflows for the week ended September 2nd versus $344mln in outflows the week before.  30-day supply is slightly weaker this morning with $7.9 on tap over the next 30 days versus $6.3bln Friday.

PR paper continues to rally after PREPA reached a preliminary agreement with creditors.  PREPA paper saw the biggest boost with bonds trading as high as $68 after trading in the mid to highs $50s just a week ago.   PR GO 8s of 2035 trading around $75.00 (11%) to the close out the week, compared to trading @ 71(11.64%) in late August.  We expect to see PR paper stabilize around these levels for the time being.

30-Day visible supply: $7.9bln