CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $3.2bln. This brings the YTD total to +$277.152bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $33.71bln, and YTD total corporate bond issuance was $1.163t. Investment grade corporate bond issuance thus far in 2017 is down 3% y/y when compared to 2016.

(Nikkei Asian Review) Abe’s coalition retains two-thirds majority in Japan election

• Japanese Prime Minister Shinzo Abe’s ruling coalition held on to a two-thirds majority of the seats in Japan’s lower house after Sunday’s general election, putting the prime minister in a position to move toward revising the country’s pacifist constitution.
• Abe’s Liberal Democratic Party and coalition partner Komeito easily saw off a challenge from a divided opposition, gaining 313 seats of the contested 465 seats.
• Abe’s victory gives the prime minister a fresh mandate to pursue his cherished goal of reforming Japan’s postwar constitution and to continue his economic-stimulus measures. If he wins a fresh three-year term as LDP leader at a party congress next year, he could govern until 2021, making him Japan’s longest serving prime minister since World War II.
• Following the coalition’s victory, Abenomics will get a new start. In the coming months, the prime minister will prepare a 2 trillion yen policy package that is to include making education free.

(TheStreet) Charter and Comcast Shares Get Punished for Cord Cutting

• Over-the-top video services such as Netflix and Amazon Prime are eating away at pay-TV’s customer base, but Comcast says cord-cutting isn’t the end of the world.
• Comcast badly wants to hold onto its video subscribers, although Chairman and CEO Brian Roberts told investors during a Thursday morning investor call that the cable operator has been preparing for the world of cord cutting.
• “We anticipated this shift,” Roberts said. Comcast invested in its Emmy-winning X1 entertainment operating system that allows users to watch Netflix or Alphabet’s (GOOGL – Get Report) YouTube via its platform, developed a remote control that recognizes voice commands and launched the Xfinity streaming app, among other initiatives that enhance its video service.
• When customers cut the cord to Comcast’s pay-tv offering, Roberts and other executives suggested, they don’t kill the cable operator’s model.
• “Broadband connectivity, both residential and business — that’s now a $20 billion-year business,” Roberts said.
• “That is a big portion of our company. That’s growing at double-digit revenue growth, and it is very accretive to our margin.” Over the next five years, he added, broadband usage will only increase with the growth of the Internet of things, smart home applications, virtual reality, 4K video, smart electrical grids and other applications.
• Cord cutting actually improves some of Comcast’s metrics, cable unit CEO David Watson told investors.
• While Comcast still wants customers to buy a package of video, mobile phone service, home security and other services, as the company has said that the bundle of services reduces customer defections. Or course, the package also boosts revenues. At the same time, though, Comcast actually has higher profit margins if consumers cut out other services. “The economics are very encouraging if they do select broadband only,” Watson said, noting not only the higher profit margins but also the lower cost to deliver just broadband.

(TheStreet) Coca-Cola Proves It’s Not Irrelevant

• Coca-Cola Co. reported better-than-feared third-quarter earnings on Wednesday, Oct. 25, as the beverage company continues to reinvent itself for more health-focused consumers.
• While Coca-Cola continues to “drive relevance” in its core brands like Coke, CEO James Quincey told analysts on the conference call that expanding its portfolio of smaller brands is crucial to the company’s success.
• “The consumer landscape is changing,” he said. “We see an increasing number of smaller, faster competitors” catering to consumers seeking more variety. “In order to thrive in this kind of environment, we need to be more entrepreneurial and agile.” The Topo Chico acquisition is one such effort at “growing our portfolio multiple ways.”
• Topo Chico, part of Coca-Cola’s venturing and emerging brands unit, will follow the same playbook Coca-Cola used after acquiring Honest Tea, maintaining the brand’s entrepreneurial spirit while rapidly expanding its reach.
• “Growing premium beverage such as adult craft beverages,” like mixers, is another priority, Quincey added. Coca-Cola introduced a premium mixer brand, Royal Bliss, in Spain, and also relaunched Schweppes mixers in the U.K.
• Strong North American performance came after Coca-Cola’s biggest competitor, PepsiCo Inc. , reported weak results in the region. Quincey downplayed the comparison, saying that in the highly competitive North American market, “it’s not just one large competitor we face-there are lots of competitors, large, medium, and small.”

(Bloomberg) Lear Full Year Sales Forecast Beats Highest Estimate

• Lear forecast sales for the full year; the guidance beat the highest analyst estimate.
  
  • Sees FY sales $20.4 billion, estimate $20.06 billion (range $19.61 billion to $20.33 billion) (Bloomberg data)
  • 3Q net sales $4.98 billion, estimate $4.84 billion (range $4.65 billion to $4.95 billion) (BD)
  • 3Q adjusted EPS $3.96, estimate $3.74 (range $3.42 to $3.97) (BD)
  • Boosts Yr Views for Sales, Earnings, and Free Cash Flow
• Lear’s credit profile may continue to be among the strongest of the auto suppliers covered by BI Credit in 2017. Downturn analysis shows the company’s profile weakening, but remaining well within raters’ targets and its maximum leverage covenant. Maintenance of current credit metrics may be sufficient for further upgrades of Lear’s bonds, based on rating providers’ comments. The company’s bonds trade wider than Delphi and BorgWarner, despite having outperformed them over the past year. (Bloomberg Intelligence – 09/25/17)

(Bloomberg) U.S. Notches Solid 3% Economic Growth, Despite Hurricanes

• The U.S. economy grew robustly in the third quarter despite two hurricanes, propelled by steady spending from American businesses and households.
• Gross domestic product, the broadest measure of goods and services made in the U.S., expanded at a 3% annual rate in July through September, the Commerce Department said Friday. Economists surveyed by The Wall Street Journal had projected a 2.7% gain.
• Output expanded at 3.1% rate in the second quarter. This marks the economy’s best six-month stretch since mid-2014.
• The third quarter’s strong growth is particularly impressive because two hurricanes—Harvey and Irma—temporarily shut down major population centers in Texas and Florida in August and September. The Commerce Department said in its report Friday that the storms likely suppressed business activity such as oil and gas extraction in Texas and agriculture production in Florida. But the agency added, “it is not possible to estimate the overall impact of Hurricanes Harvey and Irma on 2017 third-quarter GDP.”