MarketsMuse Fixed Income Update “Corporate Bond Market- Balancing on a Knife Edge” is courtesy of extract from the 10.02.15 weekend edition of “Quigley’s Corner”, a daily synopsis of the investment grade corporate bond market and rates trading space authored by Ron Quigley, Managing Director of investment bank and institutional brokerage Mischler Financial Group, the financial industry’s oldest and largest minority brokerdealer owned and operated by service-disabled military veterans. Mischler Financial was selected in 2014 and again in 2015 for the Wall Street Letter Award “Best Research-Brokerdealer”
Blackouts couldn’t be more optimally timed as we experience massive re-pricing in our IG primary credit market. The corporate black-outs are serving as an unplanned, well-timed inherently built-in “kick-the-can” that is necessary in helping us to all buy time as we navigate thru what is perhaps the most unpredictable, treacherous, volatile and uncertain time that our primary markets have experienced since 2008. As one very senior syndicate source told me “the credit markets are sitting on a knife’s edge.” IG spreads are on the whole 44 bps wider at the end of the third quarter according to Morgan Stanley.
Today’s notoriously and unexpected poor employment data was the last thing credit markets needed and it has instigated a massive Treasury rally. Perhaps this is a bit of good news because when both are combined, is a potential high velocity tailwind to credit products from big government bond funds. However, that’s “if” funds want to own credit product and hold it for an extended period of time and potentially wear a negative mark-to-market.
Having said that, the guy-in-the-corner suggests that at some point this weekend, you should put on your favorite song and sing along to it after many shots of tequila. When you get to the point of feeling bad, look at yourself in a mirror and realize that you can begin to feel better with coffee, food, sleep and time but come Monday morning the business model you are used to is about to change. Not adapt; not get better; rather change. The trends in the credit markets that we have seen over the last two quarters are showing no signs of abating, and in some degrees, worsening.
Now please let me introduce the moment you’ve been waiting for..
Syndicate Forecasts and Sound Bites from “The Best and the Brightest!”
I am happy to report that once again the “QC” received unanimous participation from all 23 syndicate desks surveyed in today’s Best & Brightest polling. That includes all of the top 22 ranked syndicate desks according to Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table that can be found on your terminals at “LEAG” + [GO] after which you select #201 (US Investment Grade Corporates). Their cumulative underwriting percentage is 94.00% of YTD IG dollar debt underwriting which simply means they’re the ones with visibility. But it’s not only about their volume forecasts, rather it’s also about their comments! This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from.
*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.
The question posed to the “Best and the Brightest” early this morning was:
“Good morning! So, this week the massive repricing in primary markets saw average NICs bust out to 54.23 bps; bid-to-covers shrank to an average 2.02x; today’s numbers were BAD; Obamanomics is quite the engine of growth and job creation, China’s slowdown is showing up in our data (ISM Milwaukee posted its worst manufacturing number since the dot com bubble). Spreads are wider on today’s data to start. Lower-for-longer might just be lower forever! The two-part question for today is what are your volume forecasts for IG Corporate supply for BOTH next week AND October? It’s going to be challenging to nail that down but it’s an important survey at this critical juncture. Many thanks, Ron”
……and here are their formidable responses: Continue reading