Overnight Credit Trading

February 21st, 2017 6:37 am

Via Bloomberg:

IG CREDIT: Lowest Volume Since Jan. vs Huge Volume Prior 3 Days
2017-02-21 11:15:49.518 GMT

By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $13.5b Friday vs $24b Thursday, $18.2b last Friday. It
was the lowest volume session since $12.8b Jan. 3.

* 10-DMA $19.9b; 10-Friday moving avg $13.2b
* 144a trading added $1.8b of IG volume Friday vs $2.2b
Thursday, $2.1b last Friday

* Top 5 highest volume sessions back to 2005
* $28.2b, 1/31/2017
* $25.2b, 11/30/2016
* $24.6b, 2/15/2017
* $24.0b, 2/16/2017
* $23.8b, 2/14/2017
* 6 of the top-10 highest volume sessions have been this

* The top-3 most active issues longer than 2 years:
* KHC 4.375% 2046 was 1st with client flows accounting for
90% of volume
* GS 3.85% 2027 was next with client and affiliate trades
taking 87% of volume
* VZ 2.625% 2020 was 3rd; client and affiliate trades took
82% of volume
* VZ 2.946% 2022 was most active 144a issue with client and
affiliate trades taking 83% of volume

* Bloomberg Barclays US IG Corporate Bond Index OAS at +119 vs
+118, the new tight for the year and the tightest level
since 2014
* 2017 wide/tight: 122/118
* 2016 wide/tight: 215 (a new wide since Jan. 2012)/122
* 2015 wide/tight: 171/122
* 2014 wide/tight: 137/97
* All time wide/tight back to 1989: 555 (Dec. 2008)/54
(March 1997)

* BofAML US Corporate IG Index unchanged at +124; +123, a new
tight level YTD and the tightest since Oct. 2014 was seen
Feb. 15; +106 was hit in June 2014

* Standard & Poor’s Global Fixed Income Research IG Index
unchanged at +165; +164, the tightest spread back to at
least 2015 was seen Jan. 24-27

* Current market levels vs early Friday:
* 2Y 1.235% vs 1.194%
* 2017 High/Low, 1.236%/1.145%
* 2016 High/Low, 1.275%/0.552%
* Looking back 10 years: 5.098%/0.155%
* 10Y 2.449% vs 2.418
* 2017 High/Low, 2.513%/2.326%
* 2016 High/Low, 2.598%/1.359%
* Looking back 10 years: 5.295%/1.359%
* DOW futures +54
* Oil $54.25 vs $52.98

* No IG issuance Friday vs $800m Thursday, $5.65b Wednesday,
$11.9b Tuesday, $6.7b Monday
* Recap of last week’s subdued IG issuance
* Monthly volume $63.65b
* YTD volume $291.1b; ex-SSAs $226.6b

* Pipeline: 2 to Price, Adds/Updates PH, TXN, MOS, MCY
* Note: subscribe bar in upper left corner

Credit Pipeline

February 21st, 2017 6:33 am

Via Bloomberg:

IG CREDIT PIPELINE: 2 to Price, Adds/Updates PH, TXN, MOS, MCY
2017-02-21 10:53:05.763 GMT

By Robert Elson
(Bloomberg) — 2 Yankee deals came forward overnight and
are set to price today. Domestic names are expected to be added
to the mix as 86% of dealers, in a Bloomberg News survey, look
for at least $15b-$20b of IG issuance this week. 44% think it
will be more than $20b.

Recent updates:

* Parker-Hannifin (PH) Baa1/A, plans to issue up to $2.5b sr
notes to fund Clarcor acquisition; mandates C/MS for
investor meetings and calls Feb. 13-16; 144a/Reg-S USD
and/or EUR expected to follow
* PH announced a € benchmark deal today; the announcement
said, in part, “net proceeds from this offering,
together with;(i) the net proceeds from the US Dollar
* PH was cut to Baa1 by Moody’s, citing the co.’s “modest
but noteworthy increase in financial risk tolerance”
* Texas Instruments (TXN) A1/A+, has history of March, April
* Mercury General (MCY), to hold investor calls Feb. 22-23,
* Mosaic (MOS) Baa2/BBB-, filed automatic mixed shelf; has not
issued since 2013
* $2.5b deal for Vale fertilizer ops; to fund purchase via
$1.25b cash and debt issuance
* PepsiCo (PEP) A1/A, has $4.4b maturing this year including
$750m next week; has issued in February in 2016, 2014, 2013,
* Kuwait (KUWIB) to hold roadshows March 5-15, via
C/HSBC/others; a debut deal of as much as $10b may price in
late March/early April
* The State of Kuwait is rated Aa2/AA
* Allergan (AGN) Baa3/BBB, exits blackout; last issued in 2015
* Has $1b maturing March 1
* General Motors Company Files Shelf; Parent Last Issued Feb.
* Medtronic (MDT) A3/A, Files Debt Shelf, Has February
* CNA Financial (CNAFNL) Baa2/BBB, Exits Blackout, Has History
of Feb. 10Y Issuance
* Exxon Mobil (XOM) Aaa/AA+, has a history of Q1 issuance
* Feb. 29, 2016: $12b in 8-tranches
* March 3, 2015: $8b in 7-tranches
* March 17, 2014: $5.5b in 5 parts
* Has $2.25b maturing March 15

* M&A deals expected in 2017, updated
* List grows with the addition of RBLN, BATSLN, FOXA
* MARS, the privately help candy behemoth of M&M fame has
a $5b loan outstanding for its VCA purchase; a private
place or debut bond sale to support the acquisition is


* Panama; debt shelf amended to offer up to $3b debt, warrants
(Jan. 9)
* PG&E Corp (PCG) Baa1/BBB; $350m mixed shelf; Feb. 2014 was
last issuance at this level (Jan. 4)


* United Technologies (UTX) A3/A-; plans to tap debt markets
in early 2017 to complete share buyback (Dec. 14)
* 3M (MMM) A1/AA-; plans up to $2.8b debt in 2017, suggesting
another yr of incrementally higher leverage, BI says (Dec.
* European Stability Mechanism (ESM) Aa1/–; mandates for
advisement on inaugural USD issuance (Oct. 21)
* Conagra Brands (CAG) Baa2/BBB; could add up to $2.5b debt
for M&A, BI said
* CAG was raised to BBB by S&P in Nov. on the expectation
co. will maintain debt leverage ~3x and below

Spread Widening

February 21st, 2017 6:32 am

An excerpt from morning note by Marc Chandler of Brown Brothers Harriman:

The 10-year French premium over Germany has widened to 80 bp, the most since August 2012.  It has risen nearly 14 bp since the middle of last week.  The two-year spread is also widening.  It is at 44 bp today, the widest since May 2012.  It is up about 16 bp over the last four sessions.  The five-year credit-default swap was at 68 bp yesterday, up from 38 bp at the end of last year and 42 bp at the end of January.  The sell-off in French debt instruments has reportedly come on high volume.

The demand for German paper, not only emanating from flows out of France but the periphery more general, has seen the German two-year note fell to a new record low (~-88 bp).  This in turn has widened the spread between the US and Germany.  The US two-year premium took out the end of last year’s high (~205 bp) today to make a new post-2000 high.

Mega Deals

February 16th, 2017 3:44 pm

Via Bloomberg:

IG CREDIT: A History of Mega IG Deals
2017-02-15 19:01:26.409 GMT

By Nico Grant
(Bloomberg) — Just two months into 2017, and there has
been one mega investment-grade deal and three more that have
come close. Investors have gotten used to issuance sizes of $15b
or more over the past two years, but it wasn’t long ago when a
big offering only happened once a year, according to data
compiled by Bloomberg.

* This year’s big deals have been dominated by tech and
* $17b 7-tranche Microsoft offering priced Jan. 30
* $13.55b 4-part Broadcom deal priced Jan. 11
* $10b 9-part Apple issuance priced Feb. 2
* $10b 6-tranche AT&T offer priced Jan. 31


* Verizon holds the record with a $49b offering from Sept.
* In Jan. 2016, the debt market devoured Anheuser-Busch
InBev’s massive $46b issuance, compared to $50.55b total of
4 big deals this year so far

Looking Back

* 2009 saw the first modern mega deal, a $16.5b 6-tranche
offering by Roche
* It wasn’t until 2012 that another deal came close, with
$14.7b in 6 parts from AbbVie

* 2013:
* $49b 8-part Verizon deal priced Sept. 11
* $17b 6-tranche Apple issuance priced April 30

* 2014:
* $17b 7-part Medtronic deal priced Dec. 1

* 2015:
* $21b 10-part Actavis offering priced March 3
* $17.5b 6-tranche AT&T issuance priced April 23
* $16.7b 6-part AbbVie deal priced May 5
* $16b 6-tranche Visa offering priced Dec. 9
* $15.5b 6-part Charter Communications deal priced Jul. 9
* $15b 6-tranche CVS offering priced July. 13

* 2016:
* $46b 7-part ABIBB deal priced Jan. 14
* $20b 6-part Dell EMC offering priced May 17
* $19.75b 7-tranche Microsoft issuance priced Aug. 1
* $15.1b 6-part Abbott Laboratories deal priced Nov. 17
* $15b 6-part Teva offering priced Jul. 18

Yellen Dissected

February 14th, 2017 11:27 am

Via Stephen Stanley at Amherst Pierpont Securities:

Chair Yellen’s prepared testimony is in my view easily the most hawkish message that she has ever delivered in her tenure as Fed Chair.  She stopped short of promising a rate hike in March, but she did more than enough to put March on the table, and, perhaps more importantly, she sent a clear signal that the Fed is likely to raise rates multiple times this year.

I’m going to hit the monetary policy section first and the economic description last, reversing the order of the actual speech.

Monetary Policy

There are three huge signals in here, which I will take in order of importance, not by the order that they appear in the speech:

1)      The Bar for Future Hikes Is Low.  “Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”  There are two pieces here.  One, the economy is doing everything needed to meet the Fed’s economic projections.  Two, if the economy continues to “evolve in line with these expectations,” then “a further adjustment” would “likely be appropriate” “at our upcoming meetings.”  This turns on its head the default stance of Yellen and the doves for the last several years.  Typically, the doves have always argued that they needed to see just a little more.  Whatever progress was being made was never quite enough.  Doves could always point to a weak jobs number, wage reading, core inflation result, or whatever to delay a move for six more weeks.  After all, what harm could be done in six weeks.  What she said today is that the economy currently justifies further rate hikes unless something changes.  I view that as a low bar to rate moves.  And note that she uses the phrase “at our upcoming meetings,” which very clearly puts a March rate move on the table.

2)      Backing Off of the Low Neutral Rate Argument.  A staple of speeches by Yellen and other doves in recent years has been the argument that the neutral funds rate was extraordinarily low, which meant that the current policy stance was a little accommodative, but not by that much.  However, Yellen’s tone on this construct today is much different.  She notes that the FOMC believes that the neutral rate will “rise somewhat over time” as various headwinds diminish.  The concepts are not totally new, but the emphasis is quite different, providing another reason why the Fed is likely to need to raise rates, and more than once or twice.

3)      Highlighting Upside Risks.  For years, Chair Yellen and other doves on the Committee have always found downside risks around every corner and under every rock.  No matter how good the U.S. economic data looked, there were always downside risks from the global economy or other bogeymen.  However, today, Chair Yellen only specifically discusses one risk scenario: “As I noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.”  To be fair, as she notes, she has made this point before.  However, it was usually balanced by various downside risks.  In this case, there is no such balance.  And the “waiting too long” risk is not placed as an add-on at the end of an extended discussion of the policy outlook.  It is basically the leading idea that she lays out.  This is a case where context matters, and the fact that she led with this idea is important, especially for the question of whether the Fed may go in March.

There were two other points related to monetary policy.  On the interaction with fiscal policy, Yellen simply notes that it is too early to know what may be coming, and the FOMC will set its policy as it always does, to attain maximum employment and price stability, and fiscal policy is merely one of a myriad of inputs to that equation.  Second, Yellen had nothing more than boilerplate on the balance sheet, noting that the Fed continues to reinvest, which is part of its effort to maintain accommodative financial conditions (more on this below, reflecting Q&A commentary).

Economic Outlook

Yellen’s assessment of the economy is straightforward.  The labor market has improved significantly since her last semi-annual testimony in mid-2016.  She does not take a position on whether the economy is at, near, or past full employment.  She walks through the various components of GDP.  Consumers have been strong, and business spending was soft last year.  Inflation has been creeping higher.  Market-based inflation expectations remain low but have risen, providing some comfort to the Fed.  She notes that the FOMC expects the economy to “continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 percent.”  She adds that the Committee expects the pace of global economic activity “should pick up over time.”

Q&A on the Balance Sheet

Right off the bat, Chair Yellen was asked about the balance sheet, and she gave a lengthy prepared answer (clearly, the Fed knew this question would come).  She explained that the Fed wants to get the balance sheet down to a sharply lower level but will only do so when the FOMC is comfortable that the economy is strong enough to handle it and that the funds rate is far enough away from zero that the Fed has room to ease if things were to go south.  She explained that the FOMC does not intend to actively manage the balance sheet as a monetary policy tool.  Instead, the Fed will attempt to shrink the balance sheet with as little disruption to the markets as possible.  This means using passive roll-off to get the balance sheet down in size, and she repeated the Fed’s view that it will not ever sell MBS directly into the market.  She did not convey a sense of urgency about starting this process, but noted that the Committee will be discussing how and when to begin paring the size of the balance sheet at future meetings.  The most interesting aspect of her response in my view was the idea that the Fed does not intend to use management of the size of the balance sheet as a component of monetary policy.  There had been some talk from one or two Fed officials that a more aggressive shrinkage of the balance sheet could serve as a substitute for rate hikes at some point down the line.  This does not appear to be the way that the FOMC is thinking about the balance sheet.  I would also note that her comments suggest to me that, all else equal, the longer the Fed waits to start paring the balance sheet, the quicker it may scale in roll-off.  One can envision a scenario where the Fed starts soon but then takes the better part of a year to “reverse taper” roll-off.  My guess is if the Fed waits a while, as I expect, then this “taper” process may take place over a much shorter time period than the tapering of the last round of QE did.

Scoping Out Yellen Testimony

February 13th, 2017 12:06 pm

Via Stephen Stanley at Amherst Pierpont Securities:

Chair Yellen’s semi-annual monetary policy testimony is likely to be an important venue for the near-term outlook for Fed policy.  The written testimony will probably be Yellen’s last scripted word before the March FOMC meeting, so if Yellen and the Committee perceive that a signal needs to be sent, this testimony will be the preferred vehicle for doing so.  It seems worthwhile to briefly talk about what this appearance represents and what to look for.

The semi-annual monetary policy appearance by the Fed Chair is a legislatively-mandated exercise during which the Chair delivers the Fed’s Monetary Policy Report to the Congressional Committees charged with overseeing the Fed.  The report is accompanied by hearings, which involve a submission of written testimony by the Chair as well as several hours of Q&A.  The Chair’s responsibility in these appearances is to reflect the FOMC’s positions (as opposed to her own opinions).

So what can we expect this time around?  The broad context for Fed policy is, as has been the case for years, the FOMC seems to be more hawkish than the markets.  The fed funds futures contracts suggest that the market is pricing in roughly 2 quarter-point rate hikes this year (and a little less than 2 for 2018).  Meanwhile, the last round of FOMC projections, released in December, showed that the median call on the Committee was for 3 quarter-point hikes.  One key qualifier with respect to the monetary policy outlook is that there is heightened uncertainty regarding the conduct of fiscal policy.  Eventually, the outcome in terms of taxes, spending, etc. will impact the economy and in turn the proper prescription for monetary policy, but for the moment, most officials seem inclined to wait and see what actually transpires before tweaking the monetary policy strategy.

Most of the market action this year has reflected the ebbs and flows of projected fiscal policy, the so-called “Trump trade.”  For example, when tax reform looks more likely, interest rates tend to rise, and vice versa.  That is perfectly logical, but at times, it feels like the markets are focusing so much on fiscal policy that the underlying economic situation gets ignored.  The 3-hike scenario embedded in the “dots” did not really take into account additional stimulus from fiscal policy.  Or to put it a different way, the strength of the economy, independent of any additional thrust caused by new tax and regulatory initiatives, is likely to justify a noticeable step-up in the pace of normalization relative to 2015 and 2016.  As Fed officials across the hawk-dove spectrum have acknowledged, the economy is very close to, if not at, full employment, while inflation has moved much closer to the 2% target over the last 18 months.

While many will focus on what Chair Yellen says about the likely influence of fiscal policy on the Fed’s actions, I think this misses an important point.  The pre-existent economy already necessitates substantial Fed policy normalization.  As has been the case throughout this cycle, Chair Yellen and the other doves on the FOMC have been dragging their heels, but the case has gotten pretty compelling.  In fact, a number of Fed officials, and not just the traditional hawks, have begun to agitate for hitting the dots forecast (of three moves this year) or more.  Indeed, the tone has changed in a subtle way.  The doves are still operating in the “I need to see a little more data” mode that has left the Fed and the market hanging on the latest data release, while the hawks and even some in the middle have begun to characterize the economy with a broader brush, arguing that the state of the economy dictates noticeably higher rates independent of the latest key data point.

In this context, Chair Yellen’s testimony falls at a very interesting time.  The consensus view has been that rate hikes this year could be somewhat back-loaded.  If the Fed goes three times, the most common forecast in terms of timing is June, September, and December.  I have felt that the Fed would need to move 3 to 4 times this year, with the March meeting representing the swing factor.  In other words, a key determinant of the Fed’s ultimate rate hike result for 2017 could be whether the Committee has the gumption (and the backing of the data) to pull the trigger in March, i.e. before the cloudy fiscal outlook will be resolved.  In my view, the jury is still out on this question.  A number of Fed Bank presidents have been agitating for a move sooner rather than later, but the most dovish members of the FOMC continue to express caution.  The markets had all but priced out the possibility of a March move before Williams, Harker, and others told them explicitly that it should be considered “live.”  The most important thing we will hear out of Yellen tomorrow in my view is whether her tone suggests that March is a) “in,” b) “out,” or c) possible.  I expect her to choose option c.  I doubt that she will try to explicitly jawbone the markets to expect a March move, but I also do not think she wants March to be priced out.  Rather, she (and more importantly, the Committee as a whole) would presumably like to keep the Fed’s options open, especially with a full month’s worth of data due out before the FOMC meets again.  At the same time, I will also be watching closely to see whether her description of the economy and the policy outlook seems to hang on the last data point or takes the broader view that more clearly justifies getting to a higher rate setting.  In other words, will the Fed finally move from a first-difference orientation, always determining whether to move based on how much improvement has occurred since their last vote, or will they finally shift to a levels-based approach, seeking to find the proper rate level based on the broad contours of the economic situation?

The other key topic of conversation from a financial market perspective will be the Fed’s balance sheet.  I have little doubt that this topic will come up at some point tomorrow, but it should matter a lot to market participants whether Yellen chooses to address it directly in her testimony or waits for a question to broach the subject.  I expect the former.  Given the fact that virtually every Fed official who has spoken this year has talked about it, I have to assume that the FOMC has discussed it, and I would anticipate that the Chair would want to report on that discussion, even if the guidance provided is very general.  Indeed, I see balance sheet shrinkage as a story for the second half of this year (and I probably have one of the most aggressive Street forecasts on this parameter), so there is likely no great rush.  At some point soon, I would really like guidance from Yellen on two key variables: 1) at what point in the rate cycle will balance sheet unwind likely begin (up to now, the view has been that something would happen once the funds rate gets to 1%, but as we get closer to that mark, a little more precision is in order) and 2) what is the plan for the first stages of the unwind?  Presumably, the Fed will merely allow paper to roll off at first, but will it be Treasuries first, MBS first, or both at the same time?  And how fast will roll-off be allowed early on?  Will there be a slow “reverse taper” or a rapid transition?  The more details she gets into tomorrow, the sooner we should assume balance sheet unwind is coming.  For that reason, I would expect to see only a few vague generalities tomorrow, but the FOMC is going to have to figure this all out pretty soon if the balance sheet is going to be in play in 2017.

More Data Dissected

February 3rd, 2017 11:26 am

Via Stephen Stanley at Amherst Pierpont Securities:

The ISM non-manufacturing survey data were broadly steady in January.  The headline measure was essentially unchanged at 56.5.  The new orders and production components were down 2 points and half a point respectively.  In contrast, the employment gauge increased by 2 points.  After a somewhat softer year, on average, in 2016, the November, December, and January figures have been more in line with the 2015 averages.  Meanwhile, the prices gauge jumped by 3 points to 59.0, the highest reading since 2014.

Factory orders were firmer than expected in December, posting a 1.3% rise, as the petroleum industry posted a 14.0% spike.  In terms of the tracking estimate for Q4 GDP, the factory inventory figures imply a 0.1 percentage point upward revision to +2.0% (and an offsetting downward revision to Q1).

Labor Data

February 3rd, 2017 11:19 am

Via TDSecurities:

         Nonfarm payrolls rose by a strong 227k in January, beating expectations (consensus: 180K, TD: 175k).


·         Levels of slack broadly inched higher in January but for good reasons, as a slightly higher unemployment rate (4.78% vs 4.72%) was accompanied by a rise in labor force participation.


·         Average hourly earnings disappointed, rising a modest 0.1% m/m despite minimum wage hikes and benign seasonal distortions.  Wage growth slipped back to 2.5% y/y as a result from a downwardly revised cycle high of 2.8% y/y.


·         Overall, this report is consistent with a labor market that is near full employment, which should support continued gradual increases in wages. Thus it keeps the Fed on track to hike later this year – we expect the next hike in June – but should reduce market expectations for a hike in March. We expect the Fed will wait to see further cumulative evidence of wage and price pressures.



Nonfarm payrolls rose 227k in December, achieving a pace well above the breakeven rate needed for further declines in slack. Though the annual benchmark revisions were minor (with a -0.1% change in the level of March nonfarm payroll employment), net revisions over the past three months were negative (-49k). That left the 12-month average pace at a healthy 195k vs 187k in December. The goods-producing sector had a strong showing of +45k jobs in January, led by a sharp increase in construction and small gains in manufacturing. Private services accelerated to a 192k monthly gain, up from 150k in December, with increases widely spread across industries. Government jobs contracted for the fourth straight month.


The unemployment rate inched 0.06pp higher to 4.8% alongside a 0.2pp increase in the labor force participation rate. Looking at broader measures of slack, the U6 rate arrested its past declines and rose to 9.4% from 9.2%, as involuntary part-time employment bounced back following two hefty drops in the prior two months. The number and share of unemployed workers also moved a touch higher after hitting new lows in December, consistent with rising participation.



Average hourly earnings surprised to the downside in January, recording only a 0.1% m/m increase. That led to a step down in the pace of earnings growth to 2.5% y/y from its cycle high of 2.8% y/y (revised) in December. A stronger increase had been expected based on minimum wage hikes across 19 states while statistical distortions implied neither an upside or downside bias. By industry, however, the weakness was not broad-based. Goods-producing were relatively strong (+0.2% m/m) while private services underperformed (+0.1% m/m), though the weak print in the latter was heavily influenced by a 1.0% drop in the financial activities category. Trade jobs, which are more exposed to minimum wage changes, saw wage gains of 0.3% m/m. Overall, the downside miss in January is not a concern in our view. For one, there have been measureable minimum wage increases each of the past two years, which now may better captured in the seasonal corrections. Furthermore, wage growth remains on an upward path despite a step down in January as above-trend job growth remains sustained to put further downward pressure on slack. Finally, the 2.8% spike in December was likely unsustainable. More steady wage growth is the trend.

Refunding Preview

January 31st, 2017 12:04 pm

Via Bloomberg:

UST REFUNDING PREVIEW: $62b Expected; Bill Supply in Focus
2017-01-31 15:57:55.937 GMT

By Alexandra Harris
(Bloomberg) — February refunding announcement at 8:30am ET
Wednesday may feature outlook for bill issuance, especially in
light of debt-ceiling reinstatement March 16; next week’s
auction sizes are expected to be unchanged from November
refunding ($24b 3Y, $23b 10Y, $15b 30Y).

* Expected Treasury will discuss issuance of cash-management
bills (CMBs) to account for distortions in seasonal
borrowing created by the debt ceiling
* Quarterly survey of primary dealers conducted in preparation
for refunding announcement asked about current supply/demand
dynamics in the TIPS market, as well as near-term outlook
for MBS market and impact of flows from convexity hedging
* In Nov. 1 minutes, TBAC said increase in bill supply should
be possible in the short-term without adjustments to coupon
sizes; noted potential for significant distortions to bill
supply without a timely resolution to the debt limit
* Treasury on Jan. 30 projected net issuance of $57b for 1Q,
up $1b from $56b estimate in October

* Credit Suisse (Praveen Korpaty and others)
* Refunding announcement should be “uneventful”; likely
T-bills will address any additional financing needs this
year and increased coupon supply will come in 2018

* Jefferies (Ward McCarthy and Thomas Simons)
* Treasury may issue cash management bills (CMBs) in
February and March because the debt ceiling is expected
to create “significant distortions” in 1Q’s usual
seasonal pattern of borrowing; MORE

* JPMorgan (Jay Barry and others)
* “We expect that Treasury will likely increase coupon
auction sizes later this year,” beginning by reversing
last year’s cuts at the November refunding; 5Y-30Y sizes
would increase by $1b, TIPS by $2b; MORE

* Nomura (George Goncalves and others)
* Treasury bill program should be able to absorb any
unexpected financing needs in near future; risks of
tweaks to coupon sizes may stem from push for duration

* SocGen (Subadra Rajappa and others)
* Treasury likely to focus on Treasury bill supply as it
makes little sense to adjust coupon issuance without
getting an “accurate read on potential spending needs”

* TD (Gennadiy Goldberg and others)
* Tweaking policy doesn’t make sense until “some
clarity” is achieved on the fiscal front; looking for
further discussion of ultra-long debt issuance and 2-mo.
bill maturity

* Wrightson ICAP (Lou Crandall)
* Quarterly borrowing statement should confirm that it plans
to use CMBs later in February or early March to temporarily
offset some of the paydowns in regular bills;

Microsoft Final

January 30th, 2017 4:59 pm

Via Bloomberg:

PRICED: Microsoft Corp $17b Debt Offering Across 7 Tranches
2017-01-30 21:43:15.424 GMT

By Lisa Loray
(Bloomberg) — Microsoft priced $17b across seven tranches.

* Tranches (Guidance, IPT)
* $1.5b 3Y (2/06/2020) at +40
* +45 (+/-5), +60a
* Optional redemption; MWC
* $1.75b 5Y (2/06/2022) at +50
* +55 (+/-5), +70a
* Optional redemption: MWC; Par call 1mo prior to
* $2.25b 7Y (2/06/2024) at +70
* +75 (+/-5), +90a
* Optional redemption: MWC; Par call 2mo prior to
* $4b 10Y (2/06/2027) at +85
* +90 (+/-5), +100a
* Optional redemption: MWC; Par call 3mo prior to
* $2.5b 20Y (2/06/2037) at +100
* +105 (+/-5), +115a
* Optional redemption: MWC; Par call 6mo prior to
* $3b 30Y (2/06/2047) at +115
* +120 (+/-5), +130a
* Optional redemption: MWC; Par call 6mo prior to
* $2b 40Y (2/06/2057) at +140
* +145 (+/-5), +155a
* Optional redemption: MWC; Par call 6mo prior to
* Issuer: Microsoft Corp (MSFT)
* Ratings: Aaa/AAA/AA+
* Format: SEC Registered sr unsecured notes
* Active Bookrunners: Barclays, HSBC
* Settlement: 2/06/2017 (T+5)
* Denoms: $2k x $1k
* NOTE: MSFT reported earnings last Thurs. with EPS and rev.
beating estimates
* NOTE: MSFT issued $19.75b 7-part deal in Aug. 2016 in
connection with LinkedIn acquisition
* Information from person familiar with the matter, who is not
authorized to speak publicly and asked not to be identified