CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended August 2, investment grade funds posted a net inflow of $1.485m. This marks 33 straight weeks of inflows and inflows in 69 of the last 74 weeks. Per Lipper data, the year-to-date net inflow into investment grade funds was $79.026bn. According to Bloomberg, investment grade corporate issuance for the week was $25.49bn. Through the week, YTD total corporate bond issuance was $855.925bn. Investment grade issuance thus far in 2017 is nearly identical to the total seen through this period in 2016.

(Bloomberg) Teva 10Y, 30Y Bond Spreads Again Get Crushed

• Teva Pharmaceutical bonds are seeing high volume for the second day amid reports that bond covenants may be breached. Its 3.15 percent coupon bond due 2026 tops the most active list, according to Trace data.
• Client and affiliate flows account for 85 percent of the volume. Client buying is near 2.3 times selling. Its spread has widened to +190 area compared with +170 around close of business Thursday and +140 area last Friday. The wider spreads may have enticed clients to be better buyers than sellers today.
• Teva was cut to BBB- by Fitch, outlook negative, this morning. Yesterday Moody’s cut Teva to Baa3 from Baa2 while S&P said its ratings on the company are not affected by the report of lower-than-expected second-quarter results and reduced 2017 guidance.
• The dramatic repricing has brought the investment-grade name closer to junk comparables.

(Bloomberg) SoftBank Default Risks Jump as Son Mulls Charter Takeover

• The possibility that SoftBank Group Corp. will pile on even more debt if founder Masayoshi Son goes ahead with a bid for Charter Communications Inc. is starting to spook the bond market.
• The cost to insure SoftBank’s debt against nonpayment has jumped 17.2 basis points this week to 156.7 basis points on Wednesday, the highest level since Jan. 9, after people familiar with the matter said the company has as much as $65 billion in financing lined up as Son weighs whether to make an offer. Theyield premium on the firm’s 6 percent dollar perpetual bonds has surged 31 basis points in the period, Bloomberg-compiled prices show.
• Going through with an acquisition of Charter would cause SoftBank’s already bloated debt burden to balloon even further. The ratio of debt to earnings before interest, taxes, depreciation and amortization at billionaire Son’s company is about 5.67, more than double the median of its telecom peers, according to data compiled by Bloomberg. Charter on Sunday rebuffed Son’s initial proposal to combine the company with Sprint Corp., which SoftBank controls.

(Bloomberg) IG NEW ISSUE SECONDARY: TMT Issues Trading Wider Despite NICs

• This week’s Technology Media and Telecommunications bonds were among the new issues that widened the most in secondary trading, according to Trace.
• Comcast Corp’s bonds last traded 7-8bps, Verizon Communications’ new 16y is off 2bps and last week’s AT&T jumbo $22.5b transaction is also trading 5-11bps back of issue levels.
• Comcast & AT&T’s bonds are trading wider despite many of their tranches pricing with double-digit new issue concessions. These issuers have a plethora of debt outstanding suggesting healthy new issue concessions would be required to sell the bonds. Concessions, however, are beginning to creep back into the market across sectors as Kinder Morgan (20bps), Capital One NA (10bps) paid up to price their deals. We have been in a low yield, tight credit spread environment for an extended period and these recent prints could be signaling a degree of investor pushback.