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Treasury 'Short Overhang' Lifts After Actavis Prices 2nd Largest Bond Issue Ever
Just a day after Blackrock saw its biggest Bond ETF outflows in history ($525.8 million pulled on Monday), Actavis sold $21 billion of almost-junk 'BBB-' rated debt (at a minsicule yield of only 3.5%) in the 2nd largest bond issuance ever (2nd only to Verizon's massive $49 billion deal in 2013). The issue was oversubscribed 4.5x (around $90bn in the order book) as a ten-part offering varying from 18-month floaters to 30Y fixeds all went off below guidance. With Treasury liquidty disappearing fast, one wonders just how much rate-locking on this massive deal was responsible for a net short overhang on the Treasury complex the last few days...
Record ETF outflows on Monday...
Investors pulled $525.8 million from BlackRock Inc's iShares Core U.S. Aggregate Bond ETF on Monday, the company said on Tuesday.
Monday's outflow was the biggest in the history of the exchange-traded fund, which launched in 2003 and has about $24 billion in assets.
Didn't stymie professional demand for the Actavis deal...as Bloomberg reports,
Actavis sold debt in a ten-part offering. Order book said to have been about $90b
- $500m 18-month FRN priced at 3ml+87.5; launch at 3ml+87.5; guid 3ml+90 area; IPT 3ml+100 area
- $1b 2Y priced at +120; launch at +120; guid +120/125; IPT +135/140
- $3b 3Y priced at +130; launch at +130; guid +130/135; IPT +145/150
- $500m 3Y FRN priced at 3ml+108; launch at 3ml+108; guid 3ml equivalent; IPT 3ml equiv
- $3.5b 5Y priced at +140; launch at +140; guid +140/145; IPT +160/165
- $500m 5Y FRN priced at 3ml+125.5; launch at 3ml+125.5; guid 3ml equivalent
- $3b 7Y priced at +155; launch at +155; guid +160 area; IPT +180/185
- $4b 10Y priced at +175; launch at +175; guid +180 area; IPT +200 area
- $2.5b 20Y priced at +190; launch at +190; guid +195 area; IPT +220 area
- $2.5b 30Y priced at +210; launch at +210; guid +215 area; IPT +240 area
Ratings: Baa3/BBB-/BBB-
M&A Call: 101% M&A call on all tranches until Nov. 30, 2015
UOP: Financing part of Allergan acquisition
Bookrunners: JPM, MIZ, WFS (active); BOTM/SMBC (passive, 18-month); RBS, SMBC (passive, 2Y); RBS/TD (passive, 3Y); BNP, SMBC (passive, 5Y); BNP, BTMU (passive, 7Y); Barclays, HSBC (passive, 10Y); Barclays, TD (passive, 20Y); BTMU, HSBC (passive, 30Y)
The deal is thesecond-largest on record behind Verizon’s $49b, 8-part sale in 2013, surpassing Apple’s $17b, 6-part offering in 2013 and Medtronic’s $17b sale from 2014. The Actavis deal tops 2015's largest deal - Microsoft’s $10.75b, 6-part offering from Feb. 9.
While officials note:
“The Treasury Department is constantly monitoring liquidity across all financial markets,” spokesman Adam Hodge said in an e-mail. “The Treasury market is the deepest and most-liquid market in the world and we are committed to ensuring that it remains that way.”
But as Bloomberg notes, however, Treasury market liquidity is disappearing fast...
For decades, the $12.5 trillion market for U.S. government debt was renowned for its “depth,” Wall Street’s way of talking about a market’s ability to handle large trades without big moves in prices. But lately, that resiliency has practically vanished -- and that’s a big worry.
Less depth has meant greater volatility. So Treasuries -- the world’s haven asset during turmoil -- may be prone to more disruptions, particularly as the Federal Reserve prepares to raise interest rates. And if investors begin to doubt whether they’ll still be able to buy and sell on a moment’s notice, that has the potential to elevate the U.S.’s cost to borrow.
How much depth has the market lost?
A year ago, you could trade about $280 million of Treasuries without causing prices to move, according to JPMorgan Chase & Co. Now, it’s $80 million.
...
“There aren’t enough bonds on the planet to satisfy all the buying,” said Charles Comiskey, the New York-based head of Treasury trading at Bank of Nova Scotia, a primary dealer.
Leaving one to wonder just how much of the Treasy yield complex weakness of the last 3 days was due to underwriters locking in interest rates on $21 billion debt issuance...
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Again, once the buyer and seller are, for all intents and purposes, the same fucking entity, does it matter?
So many paper claims, so few real goods and services...
tick tock motherfuckers...
3.5% OMFG! Back up the truck!
How are their sales? They are either really good, or they expect the Fed to actually lower rates in the not so distant future....
Less liquidity than a nun's nasty
Sry for the junk but i had 8 yrs of catholic school back in the '60s & '70s. Just the visual made me swallow puke.
no problems sport.... if the truth be known, I was just playing around with html tags.
OK, so treasury liquidity is evaporating.
What is my takeaway? I guess it would be to buy long treasuries.
Thoughts?
just be careful with the FED and NY FED on the other side of the trade. i mean, c'mon, they put the FOMC meeting right before quadruple witching options/futures expiration and they do $20 billion in treasury securities lending to primary dealers and $130 billion a day in reverse repo treasury collateral so that players don't have to buy treasuries and instead can pretty much naked-short them.
sh*tshow if you ask me, but yields in theory should go lower. not what the FED wants
"not what the FED wants"
Not what the Fed says it wants!
Agree, my guess is yields go negative at least out to 10yrs. Maybe by end of 2015.
Must-see chart shows why the “1%” hates the gold standard
http://thecrux.com/must-see-chart-shows-why-the-1-hates-gold/
“There aren’t enough bonds on the planet to satisfy all the buying,” said Charles Comiskey, the New York-based head of Treasury trading at Bank of Nova Scotia, a primary dealer
Gotta call BS on this. Central Banks currently "own" $13 trillion (US) worth of Soverigns and other related junk. So, if CBs wanted to sell, there would be plenty available. Also, if there is less supply of bonds and this shitty ass issuance is 4.5X subscribed, then bond prices should be rocketing skyward. Doesn't make sense...
makes perfect sense if the major buyer and seller are the same entity and control the government for which those bonds are being issued.
How many people do you know that hold treasuries to expiration as an investment?
Holy fuck a 9 basis-point move?! Someone call Bernake!