Monday, February 8, 2016

Corporate Bond Market
Tough start for the markets this morning after global equities traded down overnight (Euro Stoxx -2.44%, DJIA Fut -219, S&P Fut -27).   Oil resumed its slide after Saudi Arabian and Venezuelan officials failed to announce a plan to cut production.  WTI Crude last $29.75.  Treasuries are rallying once again in the flight to quality and the yield on the 10yr is now down to a 1.789% in early trading.  Credit markets are significantly weaker.  The Investment Grade Index is out +6.5 already at 120.50/121.50.  Cash spreads are weaker, though not much is trading yet making it difficult to quantify.  The European bank bonds, in particular AT1/CoCo structures, are leading the charge down as concerns abound about how regulators will treat that coupon structure.  That sector is quoted down 1-2pts but there are not a lot of real bids around so it’s difficult to tell.

The instability in the markets has meant a significant decrease in Corporate new issuance from the pace set in January.  MTD we are hovering around $5bn with only $10-15bn forecast for this week.  Though there are a few benchmark transactions on tap it is unlikely they will try to print today given investor sentiment.

In economic news,  Labor market condition index (10:00am) is due to be released today.  



Municipal Bond Market
Munis are unchanged this morning after an extremely light trading day on Friday.  New issuance will remain the focus this week with $9.2bn scheduled vs. less than $4bn over the past two weeks.  Such a large calendar should pressure on the secondary market as participants continue to hesitate at putting money to work at these levels.  Funds continue to sit with large amounts of cash on the sidelines after reporting the 18th straight week of inflows with $650mln in new cash.  30-day supply is unchanged this morning with $11.7bn on tap over the next 30 days versus $10.9bn Thursday.

PR trading remains light as the market continues to prepare for debt restructuring scenarios.  Benchmark 8s traded @ $71.00 (11.84%) on Friday, after trading around the same level last week.   

30-Day visible supply: $11.7bn