Investment Grade Weekly 01/26/2018

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of January 18-January 24 were $3.6 billion, the second largest in the last 2 months. This comes on the heels of a $5.1 billion inflow the week prior, which was the largest in the past 3 months. Note that these are total flows across four investment strategies: Short, Intermediate, Long and Total Return. Per Bloomberg, investment grade corporate issuance for the week through January 25 was a meager $7.55bln. As of Friday morning, there are two small financial deals pending, but it looks as though we will close the week with less than $10b in issuance. The dearth of issuance is due to earnings season and the primary market should resurrect over the course of the next several weeks. As we go to print, the Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 88, relative to the 2017 tight of 93.

(LA Times) Burger King ad explains net neutrality with flame-grilled Whoppers

• https://www.youtube.com/watch?v=ltzy5vRmN8Q
• Burger King is delivering its own hot take on the net neutrality showdown that has enflamed the U.S., using flame-grilled Whoppers.
• Burger King’s new ad has become a sensation, with more than a million views on YouTube and it’s lighting up Twitter.
• Net neutrality is the principle that internet providers treat all web traffic equally, and it’s pretty much how the internet has worked since its creation.
• The Federal Communications Commission last month repealed the Obama-era rules, giving internet service providers such as Verizon, Comcast and AT&T permission to slow or block websites and apps as they see fit or charge more for faster speeds.
• The FCC decision has led to a fierce pushback by consumers, law enforcement and major corporations.
• Last week, a group of attorneys general for 21 states and the District of Columbia sued to block the rules. So did Mozilla, the maker of the Firefox browser; public-interest group Free Press; and New America’s Open Technology Institute. Others may file suit as well, and a major tech-industry lobbying group that includes Google has said it will support litigation.
• This week, Montana became the first state to bar telecommunications companies from receiving state contracts if they interfere with internet traffic or favor higher-paying sites or apps.

(Bloomberg) Beware the $500 Billion Bond Exodus as Offshore Cash Comes Home

• For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.
• The implications for the financial markets are huge. The great on-shoring could prompt multinationals — which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt — to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.
• It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.
• While multinationals may be less inclined to sell their corporate bonds, at least initially, the impact could be more acute, analysts say. In recent years, firms such as Apple and Oracle Corp. have become some of the top buyers of company debt. Apple alone holds over $150 billion in the bonds, exceeding even the world’s biggest debt funds. The market itself is also less liquid, which means it takes far less to move the needle.
• Big multinationals have good reason to bide their time, according to Richard Lane, a senior analyst at Moody’s Investors Service. Because their debt investments are so extensive, companies could end up inflicting losses on themselves with any large-scale selling.

(Reuters) GE reignites break-up talk after $11 billion insurance, tax hit

• General Electric Co (GE.N) indicated it is looking closely at breaking itself up on Tuesday as the conglomerate announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.
• Chief Executive John Flannery has previously raised the idea of selling pieces of the largest U.S. industrial company, but went slightly further on Tuesday, saying GE is “looking aggressively” at a spin-off or other ways to maximize the value of GE’s power, aviation and healthcare units.
• “I would categorize it as an examination of options and it’s (the) kind of thing that could result in many, many different permutations, including separately traded assets really in any one of our units, if that’s what made sense,” he said in response to an analyst question on a conference call, without giving any details.
• Flannery already is eliminating thousands of jobs and cutting $3.5 billion in costs as he tries to solve problems he inherited when he became CEO on Aug. 1, including falling sales of power turbines, a build-up of inventory and declining profit margins in some businesses. His turnaround effort is still likely to take a year or more to play out.
• Some Wall Street analysts saw Tuesday’s remarks as a sign that GE may already have figured out valuation, timing or disclosure requirements for a spin-off.