CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended June 14, investment grade funds posted a net inflow of $2.603bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $64.293bn. Per Bloomberg, investment grade corporate issuance for the week was $13.75bn. Through the week, YTD total corporate bond issuance was $680.37bn, which now trails 2016 by 5.5%. The FOMC meeting on Wednesday was a big factor in the lackluster primary calendar this week.

(CNBC) Eli Lilly CEO David Ricks weighs in on drug costs and health reform

• CEO David Ricks on Thursday zeroed in on drug costs and the need for faster regulatory approvals as the debate over health-care reform rages on.
• “We hope this is a moment where we can make improvements in the health care system for everyday Americans,” he told CNBC in an interview at the Heartland Summit in Minnesota.
• One issue being talked about, according to Ricks, is why individual payers in high-deductible plans are paying the list price for medications.
• “Because we’re providing deep rebates to payers in the system who enjoy those, but the small guy, the consumer on the street, doesn’t get that same benefit,” Ricks said.
• He also advocated for faster FDA approval on generic drugs and “innovative breakthroughs,” in areas such as Alzheimer’s and cancer treatment, to help increase competition in the pharmaceutical industry.
• Drug costs have become an increasingly visible issue following the controversial price hikes orchestrated by pharma bro Martin Shkreli and the uproar over Mylan’s skyrocketing EpiPen costs, among other developments.

(Bloomberg) Banks Leave Savers Waiting After Being Quick to Raise Loan Rates

• Federal Reserve officials raised the benchmark lending rate to a range of 1 percent to 1.25 percent on Wednesday; the central bank’s third such move in six months. In the hours since the decision was announced, U.S. banks including Citigroup Inc., U.S. Bancorp and SunTrust Banks Inc. announced that they’ll pass on the higher interest rates to borrowers, without disclosing plans to provide better rates for deposit customers.
• After years of stubbornly low interest rates, U.S. banks have been slow to increase offers for deposit accounts. They are seeking to benefit from a fatter margin between what they charge for loans and what they pay out to customers who provide the funds.
• “We do think that there’s going to be a little bit more pressure on the retail side after this rate hike, and then certainly into the future,” Terry Dolan, chief financial officer at U.S. Bancorp, the country’s largest regional bank, said at an investor conference on Tuesday. So far, he said, the bank has “seen really no change in deposit betas on the retail side.”
• At least one large U.S. bank has broken ranks. Goldman Sachs Group Inc. raised its deposit rate to 1.2 percent this month, among the highest rates offered by firms tracked on Bankrate.com, a website that monitors 4,800 financial institutions.

(Bloomberg) Dow-DuPont Wins U.S. Antitrust Nod to Create Chemicals Giant

• Dow Chemical Co. and DuPont Co. won U.S. antitrust approval for their $73 billion merger, overcoming one of the last remaining hurdles to a deal that would create a global chemicals giant.
• DuPont agreed to sell off some of its herbicide and insecticide products to resolve government concerns that the combination would harm competition and raise prices for customers, according to a settlement filed Thursday in federal court in Washington. Dow will sell a plastics packaging unit.
• The takeover is among a trio of mega-deals that would reshape the global agrochemicals industry if approved by regulators around the world. Bayer AG is seeking approval to buy Monsanto Co., while China National Chemical Corp.’s agreement to buy Syngenta AG is nearing completion. If cleared, the transactions together would consolidate the industry into four major players, including BASF SE.
• The deals have drawn complaints from farmers and environmental activists who say the the combined companies’ control of pesticide and seed markets might increase prices for farmers.
• The U.S. approval of the Dow-DuPont tie-up follows the European Union’sclearance of the deal in March, when DuPont agreed to divest part of its pesticide business, including research and development. The companies also won clearance from India and are awaiting approval from Canada.

(Bloomberg) Committee Approves Extension of Nuclear Production Tax Credit

• House Ways and Means votes to approve legislation sought by the nuclear industry power that would extend an unused tax credit for new nuclear reactors.
  
  • H.R. 1551 extends Nuclear Production Tax credit past current sunset date of 2021
  • Bill also tweaks legislation to allow nonprofit public power co-owners of plants and other partners to use the credit by allocating their pro-rated share of the credit to private partners
  • Legislation is seen as beneficial to Southern Co. and Scana Corp., which have reactors under construction that could qualify for the credit
  • NOTE: Under current law, 1.8-cents-per-kilowatt-hour credit is capped at 6,000 megawatts and only available to nuclear power plants placed in service before January 2021