Category: Investment Grade Weekly

Spreads initially ripped tighter on Monday of this week before giving back some gains, but it looks like the index will still end the week tighter, or at worst, unchanged.  The OAS on the Bloomberg Barclays Corporate Index closed at 92 on Thursday evening after ending the week prior at 93.  Treasuries are at their highest levels of the year across the board and curves continue to steepen.  The 10yr Treasury closed last week at 1.16% and it is hovering around 1.19% as we go to print on this Friday morning.  Through Thursday, the corporate index had posted a year-to-date total return of -1.45% and an excess return over the same time period of +0.49%.

The high grade primary market was more subdued this week with only $16bln in new issuance.  Next week, too, may see lower volumes with the market closed for Presidents Day on Monday, but midway through February we are on pace for $120bln of issuance which is quite a strong number.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of February 4-10 were +$2.1bln which brings the year-to-date total to +$40bln.

In our recent discussions with some of our clients, the topic of inflation and rising rates has been coming up with increasing frequency.  We have long warned of the folly of trying to predict moves in interest rates.  That is one of the reasons that we always position our portfolio in intermediate maturities rather than attempting to tactically switch between long and short maturities based on our guess as to the direction of rates.  To put recent rate moves into context, the 10yr Treasury closed at 0.51% on August 4, 2020 and it has more than doubled since then, closing at 1.18% on February 11, 2021.  If we look at returns for the Corporate Index over this same time frame you may be surprised to learn that the total return for the index was only modestly negative at -0.38% total return; and you would be hard pressed to cherry pick a worse timeframe for returns from a rate presepective!  The reason that corporate credit returns can be relatively resilient in the face of rising rates is due to the power of spread compression and coupon income.  Over that same period the index saw its spread compress from 131 to 92 and then investors also earned a coupon from corporate credit that was greater than the coupon earned from investing in duration matched Treasuries.  Could rates continue to go higher from here?  Yes of course they could, just as they could go lower.  But we would be surprised to see them go materially higher in the near term as our expectations for inflation remain relatively subdued relative to what seems to be a growing market concensus.  We will explore some of the reasons why inflation is not necessarily something investors should bank on in our future weekly commentaries.  Thank you for your interest and continued support.

Price action in the corporate bond market this week would best be described as “grabby” with spreads consistently grinding tighter throughout the week. Spreads were wider the week before last but they have since reclaimed that ground that was given up. The Bloomberg Barclays US Corporate Index closed on Thursday February 4 at 94 after closing the week prior at 97. Treasuries are higher across the board this week and curves are at their steepest levels of the year. The 10yr Treasury closed last week at 1.065% and it is 8 basis points higher as we go to print on this Friday morning. Through Thursday, the corporate index had posted a year-to-date total return of -1.61% and an excess return over the same time period of +0.27%.

The high grade primary market saw solid volumes during the week on the back of a jumbo $14bln print from Apple. Over $45bln priced during the week. Year-to-date issuance stands at $172.8 billion. Investor demand for new issuance remains quite strong as the U.S. corporate bond market is one of the last bastions for positive nominal yields globally.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of January 28-February 3 were +$7.9bln which brings the year-to-date total to +$37.9bln.

Spreads are looking likely to finish the holiday shortened week with little change.  The Bloomberg Barclays US Corporate Index closed on Thursday January 21 at 94 after closing the week prior at 94.  Treasuries have hardly moved this week and are currently less than 2 basis points lower since last Friday.  Through Thursday, the corporate index had posted a year-to-date total return of -1.22%.

The high grade primary market saw reasonable volume during the week that was right in line with concensus expectations.  Over $25bln priced during the week.  Year-to-date issuance stands at $100.3 billion.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of January 14-20 were +$7.7bln which brings the year-to-date total to +$22.7bln.

Spreads will finish the week unchanged after a minor bout of mid-week volatility that pushed spreads wider for a day.  Through the Thursday close, the OAS on the Bloomberg Barclays Corporate Index was 96, which is the same level that it closed to end 2020.  Treasury rates stole the headlines from spreads this week and are higher across the board, with the 10yr up 19 basis points week over week.  The sell-off in Treasuries began ahead of the Georgia special election and accelerated after the results, as the market began to price the expectation of more stimulus and Treasury supply.  Interestingly, rates were even able to shrug off a woeful December jobs report that showed the loss of -140k jobs during the month versus the concensus estimate for an addition of +50k.  We remain concerned about the health of the labor market, elevated unemployment and its impact on the economy’s ability to grow.

The high grade primary market was back in business this week with a strong start to the year as issuers borrowed $50bln.  It will be interesting to monitor new issue supply as 2021 progresses.  There are expectations for less supply but will this hold true?  In our view it is really a question of the economy and how quickly things get back to “normal.”  If things go swimmingly, then we would expect less supply but if re-opening takes longer than expected then that would be a case for more supply as companies that are more impacted by the pandemic may need to continue to tap the new issue market for balance sheet liquidity.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of December 31-January 6 were +$8.4bln.

Spreads will finish the week meaningfully tighter.  Treasuries have also rallied this week which has led to positive performance across the fixed income landscape due to the one-two punch of tighter spreads and lower rates.  The Bloomberg Barclays US Corporate Index closed on Thursday November 19 at 109 after closing the week prior at 114.  Through Thursday, the corporate index posted a year-to-date total return of +8.77%.

The high grade primary market was active again with $40 billion of new debt having been priced this week across 35 deals according to data compiled by Bloomberg.  Next week is typically one of the slowest of the year in the bond markets, but if 2020 has anything to say about that it could be busier than expected.  The market is closed for Thanksgiving and then closes early at 2pm on Friday so any primary market activity will be on Monday or Tuesday of next week while the latter half of the week is likely to see little to no activity.   Monthly issuance for November has now eclipsed $83 billion while the yearly total keeps adding to its record size, now in excess of $1.7 trillion.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of November 12-18 were +$6.8bln which brings the year-to-date total to +$257.8bln.

Spreads are all set to finish the week tighter.  Risk assets fared well across the board this week on the back of positive vaccine news.  The Bloomberg Barclays US Corporate Index closed on Thursday November 12 at 115 after closing the week prior at 117.  Through Thursday, the corporate index posted a year-to-date total return of +7.71%.

The high grade primary market was fairly active given the Veterans Day holiday in the middle of the week.  Jumbo deals from Verizon and Bristol-Myers pushed the weekly issuance total north of $41bln.  Next week will be the last chance for issuers to access the market before things slow down ahead of Thanksgiving.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of November 5-11 were +$5.4bln which brings the year-to-date total to +$240.2bln.

Spreads widened this week in sympathy with equities.  The Bloomberg Barclays US Corporate Index closed on Thursday October 29 at 125 after closing the week prior at 123 while stocks are on track for their worst week since March.  Through Thursday, the corporate index posted a year-to-date total return of +6.59%.

The high grade primary market was quiet amid earnings, with just over $20bln in new debt brought to market.  This brings the monthly total for October to $80bln, which is in-line with market expectations.  November could see a lighter new issue calendar due to rising virus counts and the associated volatility that could come with it, the election next week and the Thanksgiving holiday.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of October 22-28 were +$5.0bln which brings the year-to-date total to +$236bln.  This was the 30^th consecutive week of inflows into the investment grade credit markets.

Spreads are modestly tighter on the week.  The Bloomberg Barclays US Corporate Index closed on Thursday October 22 at 123 after closing the week prior at 125.  Through Thursday, the corporate index posted a year-to-date total return of +6.51%.  Falling Treasuries have been a headwind for corporate credit performance over the course of the past week with the 10-year Treasury nearly 10 basis points higher from its close the week prior.

The high grade primary market was quiet again this week, with just over $15bln in new debt brought to market.  Issuance is likely to remain in a holding pattern until after the election.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of October 15-21 were +$8.0bln which brings the year-to-date total to +$231bln.

Spreads are opening Friday morning unchanged as we head toward the conclusion of this holiday shortened week that featured only four trading days.  The Bloomberg Barclays US Corporate Index closed on Thursday October 15 at 126 after closing the week prior at 126.  Through Thursday, the corporate index has posted a year-to-date total return of +7.43%.

The high grade primary market was relatively quiet this week, with $15bln in new debt brought to market.  The next several weeks are likely to see more subdued levels of issuance as companies work their way through earnings reports and the election fast approaches.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of October 8-14 were +$8.5bln which brings the year-to-date total to +$220bln.

(Bloomberg) Hunt for Yield Pushes Investors Into Riskier Bonds Around Globe

• Bond investors are pouring back into riskier debt in search of higher returns as they increasingly factor in years of low interest rates.
• Even in Europe, where coronavirus cases are on the rise and Brexit negotiations are entering a critical phase, investors are taking more risks in a hunt for yield. The scarcity was highlighted this week by Italy’s sale of three year debt without offering any coupon on the bonds.
• Junk-rated jet-engine maker Rolls-Royce Holdings Plc drew such demand for a bond sale this week that the company doubled the size of the offering to 2 billion pounds ($2.59 billion) equivalent and tightened the pricing.
• European junk-rated borrowers have issued the most bonds since 2017 so far this year despite a lack of deals in March and August. Polish packaging firm Canpack, French shipping giant CMA CGM SA and French sugar producer Tereos are all currently marketing high-yield bonds.
• Even more money could flow into riskier assets ahead. A flood of central bank liquidity meant to support struggling economies during the pandemic has left investors sitting on $16.3 trillion of negative-yielding debt.
• Money managers are increasingly hungry for alternatives, particularly after Federal Reserve officials in September indicated they see rates holding near zero for at least three years. The world’s stock of negative-yielding bonds rose to a 13-month high this week on speculation central banks will keep buying.
• Elsewhere in the hunt for yield, China drew bumper demand for a bond sale this week even amid increasing tensions with the U.S. Turkey returned to international debt markets last week despite mounting geopolitical risks. And across emerging markets, dollar notes sold by the lowest-rated borrowers are returning more than top-rated peers.
• Nearly a third of Asia Pacific companies have scrapped or reduced dividends this year after the pandemic forced them to conserve cash.
• CAM NOTE: We do not intend to engage in this yield chasing behavior for our portfolio and instead will focus on companies with durable businesses that have sustainable capital structures with the ability to weather the current downturn. Additionally we intend to keep our structural underweight on the lower-rated BAA portion of the investment grade universe.

Spreads are slightly tighter on the week.  The Bloomberg Barclays US Corporate Index closed on Thursday September 17 at 128 after closing the week prior at 130.  Spreads have traded in a very narrow range over the course of the last month, with the OAS on the index never closing wider than 131 or tighter than 126 since the week of August 17, with numerous ups and downs within that tight range. Through Thursday, the corporate index has posted a year-to-date total return of +7.43%.  The FOMC was on the tape Wednesday, signaling that rates will remain near zero through 2023, and there was little movement in Treasuries throughout the week.

The high grade primary market was active again, with $42bln in new debt issued, though this was down considerably versus the prior week.  Next week is expected to be slightly less busy, with syndicate supply forecasts weighing in at $30-$35bln.  The pace of issuance should continue to subside as we approach quarter end.

According to data compiled by Wells Fargo, inflows into investment grade credit for the week of September 10-16 were +$4.5bln which brings the year-to-date total to +$196bln.  This was the 23^rd consecutive week of inflows into the investment grade corporate bond market.