00:00:24:12 - 00:00:26:02 Welcome back to Markets Mindset, everybody. 00:00:26:02 - 00:00:26:21 I'm Victor Forte. 00:00:26:21 - 00:00:29:14 I'm here with Moshe Tomkiewicz, Head of Debt Capital Markets here at Mizuho, 00:00:29:14 - 00:00:32:11 and Colby Griffith, Head of U.S. Debt Syndicate. 00:00:32:11 - 00:00:33:12 And Happy New Year to everybody. 00:00:33:12 - 00:00:35:18 Happy New Year to both of you, belatedly by a little bit. 00:00:35:18 - 00:00:39:11 Well, guys, we have a lot to talk about since we last got together, Moshe and I at least. 00:00:39:11 - 00:00:46:11 We left last year with a big issuance of tech bonds that kind of put the market a little bit on notice. 00:00:46:13 - 00:00:47:14 Things got a little wobbly. 00:00:47:17 - 00:00:51:16 But all of a sudden, we walk in after 2-3 weeks down in December of no issuance, 00:00:51:16 - 00:00:54:17 and it looks like the market's just got back to basics. 00:00:54:21 - 00:00:58:10 I mean, we're sitting here with $90 billion of supply over the three days 00:00:58:10 - 00:01:00:21 that have just passed, first three days of the year, setting some records. 00:01:00:21 - 00:01:02:21 I know, Colby, you're going to talk to us about that. 00:01:02:23 - 00:01:07:13 But it feels like the market's taken it completely in stride, 4+ times oversubscriptions, 00:01:07:13 - 00:01:13:05 3-4 basis points of new issue concession, attrition rates on moves from IPT to final price. 00:01:13:05 - 00:01:16:17 You know, relatively holding at averages for all of last year. 00:01:16:19 - 00:01:20:00 Colby, what do you make of this here as we open up and have, 00:01:20:00 - 00:01:22:19 three of the biggest days that we've ever had back to back to back? 00:01:22:22 - 00:01:25:15 Well, I think on one hand, it's not all that surprising. 00:01:25:15 - 00:01:30:20 I think all the commentary and the conversations that we had both with issuers and investors during 00:01:30:20 - 00:01:36:10 the month of December was all about the supply that we're going to see not only in January, but for all of 2026. 00:01:36:12 - 00:01:41:07 You look at the estimates for this year, and they are above normal numbers. 00:01:41:12 - 00:01:46:06 If we do hit some of the estimates out there, they will be record years for our market. 00:01:46:08 - 00:01:46:23 But, let's talk about that. 00:01:46:23 - 00:01:53:12 So $1.65 trillion last year, and I think the ranges for many of the banks on the street ranged 00:01:53:12 - 00:01:55:21 from flat to north of $2 trillion. 00:01:55:23 - 00:01:56:20 Correct. 00:01:57:00 - 00:01:58:12 And where is that coming from? 00:01:58:14 - 00:02:00:13 So a couple of things are going to drive that. 00:02:00:15 - 00:02:02:23 Our number is right, kind of, in the middle of that. 00:02:03:02 - 00:02:06:10 We're right around a $1.85-$1.86 trillion number, 00:02:06:10 - 00:02:09:16 which would still be a pretty sizable increase versus last year. 00:02:09:18 - 00:02:12:10 For us, there's a couple of primary drivers. 00:02:12:10 - 00:02:17:18 One is obviously going to be the data center supply and broader tech supply that you alluded to. 00:02:17:20 - 00:02:21:05 That theme is going to continue from last year into this year. 00:02:21:07 - 00:02:25:11 The other big factor is going to be, at least that we think, is going to be M&A. 00:02:25:14 - 00:02:27:19 $180 billion last year. 00:02:28:00 - 00:02:33:16 I think we're going to see something certainly with a two-handle, probably closer to the mid twos. 00:02:33:18 - 00:02:34:16 Why is that? 00:02:34:18 - 00:02:38:17 Last year, people had very high expectations for M&A as well. 00:02:38:19 - 00:02:43:05 Obviously, the first quarter, that got a little bit disrupted with the noise around tariffs. 00:02:43:07 - 00:02:48:04 This year, it seems to be a much more clean type of a calendar from that perspective 00:02:48:04 - 00:02:50:21 as far as a geopolitical standpoint, I guess. 00:02:50:23 - 00:02:52:14 So we think that will increase. 00:02:52:16 - 00:02:55:13 On the financial side, so we think most of the driver will be corporates. 00:02:55:16 - 00:02:59:14 On the financial side, we're expecting a lot more of the same. 00:02:59:16 - 00:03:03:02 The one sector we do think that could increase is likely Yankee banks. 00:03:03:06 - 00:03:06:02 And so, Moshe, turning it over to you. 00:03:06:02 - 00:03:07:18 We walk into this year, Moshe, right? 00:03:07:18 - 00:03:08:10 We talked about this. 00:03:08:10 - 00:03:14:00 It's three days of supply, epic supply, and yet the market has taken it relatively in stride. 00:03:14:01 - 00:03:17:15 What are the things that you're looking at going forward that maybe people 00:03:17:15 - 00:03:22:18 should be more concerned about as we head here into 2026 that don't seem to be reflected in 00:03:22:18 - 00:03:25:20 how they absorb the new issue of supply here over the last three days? 00:03:25:22 - 00:03:27:14 The way I look at it right now 00:03:27:14 - 00:03:33:08 is what we're seeing in the broader market is an ever increasing bet on productivity growth. 00:03:33:08 - 00:03:39:18 Because the narrative in the market right now is we have an economy that's growing above trend. 00:03:39:20 - 00:03:44:07 We're in the midst of getting a healthy dose of both fiscal and monetary stimulus. 00:03:44:09 - 00:03:49:09 And at the same time, the bond market continues to play ball. 00:03:49:11 - 00:03:54:17 Ten-year yields have traded between 4 and 4.20 since early September. 00:03:54:17 - 00:03:57:08 Market feeds off of that lack of volatility. 00:03:57:08 - 00:04:02:22 So the narrative of non-inflationary growth is a big one right now. 00:04:03:02 - 00:04:06:09 And so I think the main test for the market is 00:04:06:09 - 00:04:12:23 are we able to deliver on the productivity growth the market is currently assuming? 00:04:13:01 - 00:04:14:15 And how are we going to see that? 00:04:14:20 - 00:04:20:12 Well, right now what we're seeing is a rotation out of the Mag Seven into everybody else. 00:04:20:14 - 00:04:28:05 And that everybody else is basically a call on efficiencies and growth going forward. 00:04:28:07 - 00:04:34:00 So what we're going to want to hear during earnings is an uptick 00:04:34:00 - 00:04:39:22 in companies using AI, an uptick in companies claiming efficiencies on AI. 00:04:39:22 - 00:04:44:05 If we do see that, then this narrative is going to continue. 00:04:44:07 - 00:04:46:09 And that's going to be very bullish for risk. 00:04:46:11 - 00:04:51:00 So how much of the rush to the market do you think is from issuers looking to get ahead of, 00:04:51:00 - 00:04:55:18 what we all know is a big earnings season at the end of January, beginning of February, 00:04:55:18 - 00:04:59:10 for most of the major tech companies where, whether it's on their earnings call, 00:04:59:10 - 00:05:04:04 they're going to be announcing their need, their CapEx needs, and whether those are going to go up or not. 00:05:04:05 - 00:05:07:21 Because we've seen what's happened in the past to bond spreads for certain issuers 00:05:07:21 - 00:05:11:07 when you see them announce ever-increasing CapEx needs. 00:05:11:11 - 00:05:15:11 But also, if there is issuance on the other side of that, it can be very large. 00:05:15:11 - 00:05:19:20 Do you think a lot of what's driving the issuance now in these first possibly two weeks 00:05:19:20 - 00:05:21:21 is from people looking to get ahead of that 00:05:21:21 - 00:05:22:19 inflection point? 00:05:22:21 - 00:05:23:05 One hundred percent. 00:05:23:10 - 00:05:28:05 I mean, if you think about what debt capital market officers have been doing for the last three months 00:05:28:05 - 00:05:32:02 is we've been crying wolf on all the supply that's coming in 2026. 00:05:32:06 - 00:05:33:05 Well, guess what? 00:05:33:06 - 00:05:37:15 Investors have been hearing that same story, and they're positioned for it, 00:05:37:15 - 00:05:41:19 and yet market's trading tighter in the face of record supply. 00:05:42:00 - 00:05:44:22 That's market code for 00:05:44:22 - 00:05:50:20 “We're ready for that supply as long as we continue to see this volatility backdrop that we're seeing today. 00:05:50:22 - 00:05:53:02 We're ready for it, and we're willing to take it.” 00:05:53:04 - 00:05:56:11 And, Colby, so I remember in the fourth quarter, 00:05:56:11 - 00:06:01:22 we all were concerned about this big tech supply and spreads widening out. 00:06:01:22 - 00:06:06:20 But when we stripped away the tech issuance 00:06:06:20 - 00:06:12:17 from those companies, spreads in most of the other categories really didn't widen out. 00:06:12:20 - 00:06:15:02 And are you thinking that's the same thing that's going to happen here? 00:06:15:03 - 00:06:20:18 Do you think that the other industries, other sectors, will be able to glide through 00:06:20:18 - 00:06:25:05 a heavy issuance window from the tech companies once again and kind of 00:06:25:05 - 00:06:28:03 have the tech be offset by itself? 00:06:28:06 - 00:06:32:08 Well, I mean, to Moshe’s point, if you look at what has come this week as kind of a 00:06:32:08 - 00:06:38:21 barometer of that, right, because the names that have come this week should be no surprise to anyone. 00:06:38:23 - 00:06:44:08 There's the quote-unquote frequent flyers, if you will, that always come the first week in January. 00:06:44:08 - 00:06:46:20 We've hit on about 17 or 18 of them. 00:06:46:22 - 00:06:49:03 There's only a handful of them that have not come yet. 00:06:49:07 - 00:06:54:14 And so it's a lot of the names that people expected to come, a lot of the sectors that people expected to come, right? 00:06:54:15 - 00:06:57:20 If you look at the supply that has come of that $90 billion or so, 00:06:57:20 - 00:07:02:00 about 55 of it is either from Yankee banks or from the auto space. 00:07:02:00 - 00:07:05:03 Those are two of the biggest users of that first week every single year. 00:07:05:07 - 00:07:11:23 So the market got that other supply that it was expecting, right, the non-tech supply that it was expecting. 00:07:11:23 - 00:07:16:00 And it got it in pretty good size, right, as you alluded to earlier. 00:07:16:05 - 00:07:18:23 We're, you know, the biggest week we've ever had in the first week. 00:07:19:01 - 00:07:27:02 We're fourth all-time right now as it sits today, with, I guess, an outside chance of getting to third for total week size. 00:07:27:02 - 00:07:32:01 And to your point, concessions were very minimal. 00:07:32:03 - 00:07:38:11 And so I think that is a pretty good insight into what I hope will be the response 00:07:38:11 - 00:07:43:07 or could be the response from investors as they start getting hit with some of the other kind of 00:07:43:07 - 00:07:45:18 quote-unquote tech or data center supply. 00:07:45:20 - 00:07:49:21 I mean, you have to consider, though, that you've had $90 billion of supply in three days. 00:07:49:21 - 00:07:57:21 At some point, when do you outpace the natural demand of the market and it starts to weigh on spreads at some point? 00:07:57:23 - 00:07:59:09 That is absolutely the risk, right? 00:07:59:11 - 00:08:05:05 And so to your point, we had an earlier end to the year this year from last year, excuse me, 00:08:05:05 - 00:08:07:23 with the Fed being slightly earlier than it traditionally is. 00:08:07:23 - 00:08:11:18 So we really had three or four weeks, basically, of no supply. 00:08:11:20 - 00:08:18:19 If we continue to run at this historic pace, it is going to have to weigh on spreads, right? 00:08:18:20 - 00:08:23:09 I think this first week, certainly it was benefited from being there early 00:08:23:09 - 00:08:26:22 and taking advantage of that kind of lack of supply over the last four weeks. 00:08:27:00 - 00:08:32:12 I think as it continues and as it kind of grows longer, if you will, from a streak perspective, 00:08:32:12 - 00:08:37:02 that's where I think the risk for not only spreads widening but concessions growing 00:08:37:02 - 00:08:39:05 really start to kind of come into the market. 00:08:39:05 - 00:08:44:12 If that brings us toward the data center supply, that probably is the biggest risk out there. 00:08:44:14 - 00:08:49:08 This is really for both of you because maybe you look at it in a different way, but we talked last year about 00:08:49:08 - 00:08:51:22 the longer-dated bid that was in the market, right? 00:08:51:22 - 00:08:55:03 It was a very strong bid through most of the year for long-dated paper. 00:08:55:05 - 00:08:58:18 That waned a little bit in the fourth quarter because we upped the ante. 00:08:58:22 - 00:09:03:12 We were averaging relatively de minimis numbers of long bonds, 00:09:03:12 - 00:09:06:04 20 years and longer being issued on a weekly basis. 00:09:06:06 - 00:09:10:12 And all of a sudden at a point in the fourth quarter last year, we upped that pretty heavy. 00:09:10:14 - 00:09:11:22 And that weighed on the market a little bit. 00:09:12:00 - 00:09:13:17 We saw long-end spreads give it up. 00:09:13:19 - 00:09:18:18 Long-end spreads have come back in yet, again, it's a small sampling of three days. 00:09:18:20 - 00:09:22:13 Last year we were what Colby, 8% was roughly 20 years and longer. 00:09:22:13 - 00:09:23:18 At this point yeah. 00:09:23:20 - 00:09:26:21 And now we're at 10%, 20 years and longer. 00:09:26:23 - 00:09:34:06 How do you feel about the long bond bid here and the desire of issuers to go after it in a steepening market right now? 00:09:34:09 - 00:09:36:04 Let's start with the bid. 00:09:36:06 - 00:09:42:10 I think as long as rates stay in a very tight range and you have kind of generational low volatility, 00:09:42:10 - 00:09:46:19 you're going to have people reaching out the curve to maximize yield on the demand side. 00:09:46:21 - 00:09:53:10 And I think as that basis versus the rest of the curve comes in, I think you're going to entice more 00:09:53:10 - 00:09:59:03 issuers out the curve, especially that they feel that the rate backdrop that we're looking at right now 00:09:59:03 - 00:10:01:12 is more likely the one going forward. 00:10:01:14 - 00:10:04:18 You don't think there's going to be, or maybe I'll ask Colby, you don't think there's going to be 00:10:04:18 - 00:10:08:20 pushback from issuers because we have seen — 00:10:08:20 - 00:10:13:08 There has been a decent steepening during the month of December heading into today. 00:10:13:10 - 00:10:16:10 And obviously spreads haven't tightened enough on 10s, 30s to make that up. 00:10:16:13 - 00:10:18:13 It's gotten more expensive to go out the curve. 00:10:18:13 - 00:10:22:11 And we always see issuers who don't want to add extra. 00:10:22:13 - 00:10:27:11 Let's just say they don't want to have the cost of the earnings per share, the debt weigh on the earnings per share. 00:10:27:14 - 00:10:30:14 Do you think that that's going to hold them back from issuing out the curve? 00:10:30:16 - 00:10:34:11 I mean, Moshe can answer from an issuer perspective, but I think a couple of things that 00:10:34:11 - 00:10:39:00 we've seen over this week, and again, it's only three days of issuance, right? 00:10:39:00 - 00:10:42:23 So it's pretty hard to take too many kind of big themes out of it. 00:10:43:01 - 00:10:47:12 But a couple of things I've seen is one, we've seen five-year issuance increase 00:10:47:12 - 00:10:50:04 probably the biggest change on the corporate side. 00:10:50:04 - 00:10:54:03 So it's increased 10% versus where it was at this point last year. 00:10:54:05 - 00:10:58:15 Now it's all about the same amount of issuers as far as the names that are there. 00:10:58:17 - 00:11:03:03 But they have chosen to use more 5-years versus 10-years from a historical perspective. 00:11:03:06 - 00:11:05:20 So you have seen some issuers maybe shorten up from that standpoint. 00:11:05:22 - 00:11:09:16 Further out the curve, we haven't seen much of it yet, to your point. 00:11:09:18 - 00:11:13:18 Part of that has to do with who's in the market in that first week of the year, right? 00:11:13:20 - 00:11:14:10 As I mentioned — 00:11:14:10 - 00:11:15:01 Heavy financials. 00:11:15:01 - 00:11:15:20 — it's a lot of financials. 00:11:15:21 - 00:11:18:10 It's a lot of autos, a handful of utilities. 00:11:18:10 - 00:11:20:18 They will use the long-end of the curve. 00:11:20:20 - 00:11:25:09 I think that will remain to be tested as we get kind of further into January. 00:11:25:11 - 00:11:31:19 In early February, when we see more of a, I guess, pure corporate type of a calendar. 00:11:31:21 - 00:11:33:13 What I was going to add is keep in mind that 00:11:33:13 - 00:11:39:00 since the Fed started raising rates in 2022, people have been biased for shorter rather than 00:11:39:00 - 00:11:41:05 longer from an issuance perspective. 00:11:41:07 - 00:11:46:16 You add that on top of all the Covid maturities that we're seeing this year and the next year 00:11:46:16 - 00:11:50:02 and the year after that, that really starts stacking up. 00:11:50:07 - 00:11:53:14 So you're going to see issuers being pushed out the curve 00:11:53:14 - 00:11:58:07 out of somewhat necessity, just given how much they've been relying on the front end. 00:11:58:09 - 00:12:01:11 And that doesn't necessarily translate into dollar supply. 00:12:01:14 - 00:12:07:19 Your multinationals may look at a bunch of different currencies, just given the nominal differential on coupons. 00:12:07:21 - 00:12:12:03 But again, I think if you're looking at this current rate backdrop and that holds, 00:12:12:03 - 00:12:15:01 I think you're going to see some extension going out the curve. 00:12:15:03 - 00:12:18:03 And yeah, I mean, and Moshe, from your standpoint, you've 00:12:18:03 - 00:12:20:01 done a lot of work with issuers going into Europe. 00:12:20:06 - 00:12:23:23 Europe's a different factor nowadays as it was even two years ago, right? 00:12:24:01 - 00:12:27:17 Europe is deeper, it's stronger, it's larger. 00:12:27:20 - 00:12:32:11 The rates in some cases or the swapped equivalent rates in some cases are better 00:12:32:11 - 00:12:34:02 than what we're able to issue in the States. 00:12:34:04 - 00:12:39:08 How much of a factor do you think that's going to be on our supply this year going forward? 00:12:39:10 - 00:12:45:12 Do you think numbers that are $1.85 trillion take into account the idea that we could have a lot of supply going into Europe 00:12:45:12 - 00:12:50:13 if people have either the net interest hedging availability or are willing to do the swap back to dollars? 00:12:50:15 - 00:12:55:04 Yeah, I think when we look at our business right now, in terms of our book of business, 00:12:55:04 - 00:13:00:16 probably have the most amount of Euro mandates lined up at this point in my career that I've seen. 00:13:00:19 - 00:13:03:05 And it all goes back to what you're talking about. 00:13:03:07 - 00:13:05:00 And I think there's two things going on in Europe. 00:13:05:04 - 00:13:10:19 One is just a nominal lower cost of funding for people who have net investment hedging capacity. 00:13:10:19 - 00:13:18:05 And I think two is concerned about crowding out of the U.S., just given tech and M&A supply, 00:13:18:05 - 00:13:25:04 let's hit that diversification lever and hit a market that's not seeing that level of paper. 00:13:25:06 - 00:13:30:04 I'm going to try to end this on something that I think would be great to do collectively 00:13:30:04 - 00:13:31:20 between the two of you so we cover all the bases. 00:13:32:00 - 00:13:32:23 And I'm going to start with you, Colby. 00:13:32:23 - 00:13:33:18 Okay. 00:13:33:20 - 00:13:38:03 What are the things that you look forward over the next few months to say, these are the seminal events, 00:13:38:03 - 00:13:42:19 and if they don't turn out the way the market's feeling about it right now, this is going to make a change in things? 00:13:42:23 - 00:13:44:00 It's a tough question. 00:13:44:02 - 00:13:51:21 I feel like right now, to be fair, I think the market has a much better handle on the events that are coming up. 00:13:51:23 - 00:13:58:01 I think part of the issue was the fourth quarter that we saw and the impact that it had on spreads was 00:13:58:01 - 00:14:01:16 that data center supply kind of caught the market a little bit off guard. 00:14:01:18 - 00:14:04:07 That topic is no longer a surprise to anyone. 00:14:04:08 - 00:14:08:15 So does that mean it could be a surprise to the upside if it doesn't materialize or if it goes to Europe? 00:14:08:15 - 00:14:11:17 Listen, from some extent, yeah, I think that could be an upside. 00:14:11:17 - 00:14:13:03 Now, will that happen? 00:14:13:05 - 00:14:13:19 We don't know. 00:14:13:19 - 00:14:14:00 Right. 00:14:14:00 - 00:14:18:01 It feels like that will be a couple of weeks away still. 00:14:18:03 - 00:14:22:08 That would have been a concern, but I think the market's in a pretty good spot there. 00:14:22:10 - 00:14:30:10 It feels like, from a Fed perspective, the market is not expecting too much from the Fed too soon. 00:14:30:12 - 00:14:34:06 So I think that is in a better spot than maybe where we were a month ago. 00:14:34:09 - 00:14:38:15 So more likely any change would be a higher expectation of Fed eases or sooner — 00:14:38:15 - 00:14:39:03 Potentially. 00:14:39:03 - 00:14:42:16 — than what they currently are, which is you don't get to 00:14:42:16 - 00:14:46:00 a full probability of a Fed ease until, what, June now at this moment? 00:14:46:00 - 00:14:46:10 Right. 00:14:46:13 - 00:14:51:14 So I think those are things that would have been an issue that have kind of settled themselves out. 00:14:51:16 - 00:14:58:03 You know, I think the big question is going to be if other issuance continues at the rate it is right now. 00:14:58:06 - 00:15:01:19 I think everyone, when they were looking at their projections for 2026, 00:15:01:19 - 00:15:05:19 as I said, it was all about data center supply and it was all about M&A. 00:15:05:21 - 00:15:13:16 If other sectors that people weren't expecting become much larger, that could be something that pushes on spreads. 00:15:13:18 - 00:15:14:22 Same thing to you, Moshe. 00:15:15:00 - 00:15:19:21 Any other things that you're concerned about that you're telling your clients to look out for and just keep an eye on 00:15:19:21 - 00:15:24:13 or have in their thoughts around timing as they look at the markets over the next three, four months? 00:15:24:18 - 00:15:28:05 My two main things are inflation and AI implementation. 00:15:28:07 - 00:15:34:07 So when you have a non-inflationary growth narrative in the market, these two things matter. 00:15:34:09 - 00:15:38:09 What are we seeing on the inflationary front in terms of pricing pressures? 00:15:38:11 - 00:15:44:15 As importantly, what are we seeing in terms of AI implementation to give us a better crystal ball 00:15:44:15 - 00:15:47:02 in terms of future efficiencies? 00:15:47:04 - 00:15:54:09 So to me, those are the two most important things aside from obviously earnings and any geopolitical events. 00:15:54:11 - 00:15:55:17 The last thing, I'll leave you with both. 00:15:55:20 - 00:15:58:00 So do the midterms matter? 00:15:58:02 - 00:15:59:12 We have so many other things going on. 00:15:59:12 - 00:16:04:15 I usually know in this time of year, we start to worry that the midterms start to have an effect on the markets 00:16:04:15 - 00:16:10:16 because of the ambiguity between will we have full government one way or will we have split government? 00:16:10:21 - 00:16:12:21 Who will be the Fed chair, et cetera? 00:16:12:23 - 00:16:18:04 Where do you put those kinds of things into the mix of things you're looking at or do you not care about them right now? 00:16:18:04 - 00:16:25:01 I think the market already assumes that the Supreme Court is going to strike down tariffs 00:16:25:01 - 00:16:30:07 and I think the market already assumes that we're going to get a very accommodative Fed chair. 00:16:30:09 - 00:16:38:16 So I think those obviously matter, but I think the market is already assuming the stuff that normally creates volatility. 00:16:38:16 - 00:16:40:02 Well, that'll be it for this session. 00:16:40:05 - 00:16:42:05 Thanks again for tuning in to Markets Mindset. 00:16:42:06 - 00:16:45:00 Gentlemen, thank you very much and we look forward again to seeing you next time. 00:16:45:01 - 00:16:46:02 And again, Happy New Year.