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US CORPORATES: BA/ML's Mikkelsen noted that "it was made clear at the June FOMC
meeting, where also the FOMC Policy Normalization Principles and Plans were
released, that the Fed planned to proceed with balance sheet normalization
despite the recent weakness in inflation data. We think this is what triggered
companies to front load issuance plans into the summer. US bks largely completed
their TLAC issuance needs, two large M&A deals that were not" set to close until
yrend "went early (AT&T and Amazon), etc."
- "Third qtr HG new issue volumes exceeded our (perhaps too conservative)
expectations by about $120B," he said. "When something - i.e. Fed bal.sheet
reduction - is widely expected it gets priced in. Mechanically," it spured
"supply shock, which led to wider credit sprds more than 2 mos prior to the
Fed's actual (expected) bal. sheet announcemt. Hence what we are seeing now
heading into the event is rapid credit spread tightening as this supply is being
absorbed and investors rationally expect that the shock subtracts from volumes
later in the year. Using the $120B number as a measure of magnitude, this is the
equivalent of the first 7 mos of reduced Fed" buying of Tsys, MBS(thru Apr '18).