Thursday, January 7, 2016

Corporate Bond Market
China strikes again!  Global stocks are tumbling once again after China halts trading on equities less than thirty minutes into the session.   The Chinese central bank also cut the Yuan reference rate again.  By the end of the session, the Nikkei was down 2.33%, the Hang Seng down 3.09%, and the Shanghai Comp down 7.04%.  The follow through into the European and US markets has been harsh (Euro Stoxx -2.79%,  DJIA Futures -372,  S&P Futures -43.75).  Treasuries continue to rally with the 10yr last at 2.158%.  Credit spreads are weaker with better sellers to start.  The IG index is in from the wide of +3.25 to trade +2.25 last,  94.25/95.25.  Commodities markets remain under pressure as well.

The equity volatility will most likely keep issuers at bay again.  WTD issuance is at $15.78bn out of an expected $23-28bn.  At least three deals stood down yesterday and are waiting in the wings for some market stability.  Secondary activity seems mixed.  There is some opportunistic buying of basis bonds where CDS liquidity can be found.  Interestingly, the hybrid sector has held in remarkably well despite the sell-off in other sectors.   I think the floating-rate structure remains attractive as an asset class, coupled with the technical that issuance in this space is likely to be considerably down in 2016. 

In credit news, Walgreens saw retail sales drop but that move was offset by an uptick in the prescription drug business.  Macy’s also saw a drop in sales numbers and revised EPS down accordingly. 

In economic news, Initial Jobless Claims (8:30am), Continuing Claims (8:30am), and Bloomberg Consumer Comfort (9:45am) are due to be released today.


Municipal Bond Market
Munis continue to rally this morning as the market looks towards Treasuries for direction.  The combination of lack of supply mixed with this week’s rally in Treasuries has created a bond grab in the muni market.   It seems almost impossible at times to buy bonds off of BWs with more bidders than ever.  New issuance continues to see extremely strong demand with almost every deal oversubscribed.  30-day supply is stronger this morning $10.4bn scheduled vs. $9.2bn yesterday.

We continue to see very little flow in PR paper after January 1st interest payments.  It is now a waiting game for the majority of institutional customers as they sit on positions developed over the past year.  Puerto Rico GO 8’s of 2035 continue to trade around $73 (11.51%) after trading around $71 last week.

30-Day visible supply: $10.4bn


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