Morning Commentary: Deal action heavy, includes MUFG, Starbucks; strong March supply forecast

By Cristal Cody

Tupelo, Miss., Feb. 26 – The outlook for investment-grade issuance began to take shape early Monday with heavy pricing action expected over the session in the primary market.

Issuers offering notes include Mitsubishi UFJ Financial Group, Inc., Starbucks Corp., Williams Partners LP, Duke Energy Carolinas, LLC, CenterPoint Energy Houston Electric, LLC, Stryker Corp., Kansas City Power & Light Co., Phillips 66, Burlington Northern Santa Fe, LLC, Florida Power & Light Co. and Enbridge Inc.

Also, the Bank of England intends to price $2 billion of three-year senior notes on Monday. The notes were talked to price at the mid-swaps flat area, a source said.

Market sources predict heavy volume for the week with about $25 billion to $30 billion of supply forecast.

Looking ahead, March high-grade supply volume “should increase nearly 70% from February,” according to a BofA Merrill Lynch research note released on Monday.

BofA Merrill Lynch analysts forecast $130 billion of supply with a range of $110 billion to $150 billion over the month.

“The risk to the $130 [billion] middle of that range stems from a number of larger M&A deals that may or may not go in March, depending on regulatory approvals and other developments,” the analysts said.

In other activity early Monday, the three-month Libor was reported at 1.96%, up 2 basis points from where it went out on Friday, a source said.

Fear of corporations’ overseas cash repatriation and unwinding of the Federal Reserve’s balance sheet is behind the recent widening in money market spreads, George Goncalves, an analyst with Nomura Securities International, Inc., said in a note on Monday.

“We think hedgers and speculators alike are concerned about reduced dollar funding due to two structural changes that are likely to transpire over the course of the next 9-18 months,” Goncalves said. “First, U.S. corporations with overseas profits will bring back a portion of their cash due to the recently passed tax reform bill. Second, the Fed balance sheet unwind is reducing reserves.”

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