Friday, Dec. 4, 2015

Corporate Bond Market
This morning’s Non-Farm Payroll number came in at 211k versus estimates of 200k and a prior of 271k.  The Unemployment Rate is holding steady at 5%.  This makes the December rate hike all the more likely and the Treasury market is reacting accordingly (10yr yield is now up to a 2.34%, 30yr yield is 3.10%).   Equity futures are up so far, with the DJIA Fut +48 and S&P Fut +5.75.  Credit markets are unchanged to start with the Investment Grade Index last at 83.25/83.75.   Cash spreads also unchanged.  Commodities markets are up slightly. 

The primary market was active again yesterday with large deals from Analog Devices and BAE Systems.  Both traded well in the secondary, though the new ADI 30yr seems to be lagging. WTD issuance ended up at $30bn versus estimates of $20-25bn.  MTD we are at $21bn out of a potential $40bn.  We would expect next week to be busy again before we begin to tail off into the holidays.  We remain active in the new Synovus Financial fix to float 10yr deal.  The 5.75% coupon fixed for five years, and 3mL+418 floating rate back end is a particularly attractive and rare structure. 

The secondary market continues to be very difficult to trade.  Investors are struggling to avoid landmines that have become increasingly difficult to foresee and anticipate.  Clearly the GE hybrid exchange has taken some time to digest, and the whipsaw price action in the Energy and Metals and Mining sectors continues unabated with CHK the latest to propose an exchange that would further subordinate existing bondholders.    On the flipside Avon Products traded up yesterday on reports they are in talks to sell their North American business.    We remain better buyers of many of the recent hybrids, the new SNV deal, as well as most VW issues. 


Municipal Bond Market
Munis are unchanged this morning after selling off significantly on Thursday.  Trading was light ahead of the 8:30am payroll number as the market remained cautious.  We saw limited demand in the primary for the first time in about two weeks and traders sat on the sidelines with such a strong sell off in treasuries.  Demand should shift next week from the primary to the secondary with a new issue calendar of only $4.3bn.  Muni funds recorded inflows again with $364mln in new cash.  30-day supply is stronger this morning with $9.4bn on tap over the next 30 days versus $7.4bn Thursday.

Trading in PR paper slowed on Tuesday after two straight days of above average volume.  Benchmark 8’s of 2035 continue to trade around $75.375 (11.10%) after trading around $75.00 (11.15%) earlier in the week.  We expect to see volume remain below average leading up to January debt payments. 

30-Day visible supply: $9.4bn


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