MBS RECAP: ISM Reaction, ADP Preparation, and Abbvie (What's an Abbvie?)

Bond markets sold off again today, though it wasn't necessarily destined to be the case.  In other words, it actually took several events working together to push rates up to today's highs.

The first event has to do with Abbvie, among other things.  What the heck is that, you might ask?  Whatever it is, it's apparently big enough to borrow as much money as some of the biggest corporate bond issuers, ever (seriously though, it's a pharmaceutical company who needs money to buy another pharmaceutical company).  Abbvie unleashed $16.7 bln of fresh debt supply today, which is the third biggest this year behind AT&T ($17.5 bln) and another big pharma player Actavis ($21 bln). 

When we add the "smaller" players to the mix (tiny little companies like Apple and Microsoft who issued roughly $17bln in total) along with the boat-load of other corporate offerings, 2015 is on pace to break 2014's record.  Great, so what's the point?

For some investors, some of these deals are a viable alternative to things like MBS and Treasuries!  There was over $60bln in bids submitted for the $16.7bln Abbvie deal.  There is a ton of demand out there for reasonably safe debt that actually pays a yield.  Investors pull cash from MBS and Treasuries in order to buy it, thus hurting rates in the process. 

This accounts for the shift that took place this morning even before the ISM data came out.  It wasn't an epic shift because market participants knew there would be some sort of Abbvie deal coming.  It just turned out to be a bit bigger than expected.  By the time we add a stronger ISM report into the mix, and perhaps with an eye on ADP-inspired volatility potential tomorrow morning, bond markets waved the red flag and moved defensively higher in yield.