Category: Insight

08 Nov 2019
Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads were tighter during the week and are now at the tightest levels of 2019.  The spread on the Bloomberg Barclays Corporate Index closed at 105 on Thursday and there is a positive tone in the air on Friday morning which could lead to an even tighter close as we head into the long weekend –the bond market is closed on Monday in honor of Veteran’s Day.  The move in Treasuries during the week has more than overshadowed tighter credit spreads.  It has been a quick and violent move higher in rates.  As we go to print the 10yr Treasury is over 22 basis points higher on the week while the 30yr is 21 basis points higher.  Unpredictability in rate moves is the principal reason that we are “rate agnostic” at CAM and instead focus on credit risk while avoiding interest rate speculation by always positioning investor portfolios in intermediate maturities.

The primary market got a decent start to the month as $21.8bln in new debt came to market.  The pace should pick up substantially as soon as next week due to pending M&A funding from AbbVie which could total near $30bln. 2019 issuance has now passed the trillion dollar mark and it stands at $1,014bln which trails 2018 by -7%.

According to Wells Fargo, IG fund flows during the week of October 31-November 6 were +$3.2bln.  This brings YTD IG fund flows to +$249bln.  2019 flows are up 9.5% relative to 2018.

 

 

Bloomberg) Global Bond Sell-Off Persuades Some Investors to Buy the Dip

  • Recent losses in Treasuries, which crescendoed Thursday into one of the worst days since Donald Trump was elected president, look like a buying opportunity for many investors who have a grim view of the economy’s prospects.
  • And it appears some are pouncing, with traders cashing out bearish wagers and buy-the-dip buyers rushing in. The rekindled interest in the safety of bonds nudged yields on the 10-year, which had climbed to a three-month high of 1.97% on Thursday, down to as low as 1.89% in early European trading Friday before bouncing back to around 1.94%. European bonds rebounded after French and Belgian yields had climbed above 0% Thursday.
  • Signs of progress in U.S.-China trade talks have thrashed bonds for days, and the two countries agreed Thursday to roll back tariffs on each other’s goods if a deal is reached. The Treasury market has seen a huge turnaround since August, when fears that global growth is slowing prompted the biggest monthly rally since 2008.

 

 

(Bloomberg) U.S. Says Phase-One China Deal Would Include Tariff Rollback

  • The U.S. and China have agreed to roll back tariffs on each other’s goods in stages as negotiations continue over resolving the more than yearlong trade war, officials on both sides said.
  • “In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” China’s Ministry of Commerce spokesman Gao Feng said Thursday.
  • White House economic adviser Larry Kudlow confirmed the advance in negotiations. “If there’s a phase one trade deal, there are going to be tariff agreements and concessions,” he told Bloomberg.
  • An agreement to ratchet back tariffs would pave the way for a de-escalation in the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by Trump, which by now apply to the majority of its exports to the U.S.
  • “If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said Thursday.
01 Nov 2019
High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

CAM High Yield Market Note

11/1/2019

 

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.1 billion and year to date flows stand at $22.9 billion. New issuance for the week was $5.9 billion and year to date HY is at $215.4 billion, which is +36% over the same period last year.

 

 

(Bloomberg) High Yield Market Highlights

 

  • U.S. junk bonds are set to rebound from a three-day decline to open higher this morning as stock futures advance on the heels of better-than-expected manufacturing data from China and as oil prices rise after a four-day losing streak.
  • Junk bonds fell for the third straight session and reported a loss of 0.15%, the longest losing streak in almost five weeks. Spreads are 38bps wider in the past four days at 392bps over U.S. Treasuries
  • CCCs posted a loss of 0.29%, the most across high yield yesterday, taking year-to-date returns down to 5.38%. CCC yields surged to a nine-month high of 11.25% and spreads widened the most in 10 months to 969bps
  • Investors, though cautious, continued to allocate cash to high-yield for the week
  • Supply has ground to a halt with no new deals announced or priced in the past two days but there are some in the pipeline that could emerge soon.  

 

  • (Bloomberg) Extended Junk Rally Squeezes Spread Between BBB and BB to Record 
  • The difference between BBB and BB U.S. corporate bond spreads collapsed further as investors continued chasing yield in the highest-rated junk bonds
    • The differential between the best high yield and worst investment grade hit a fresh post-credit crisis low amid continued inflows to bond funds and negative yielding debt
      overseas
    • The compression is making it so investors may have to start reaching even further down the ratings spectrum to find value
    • The differential between BBB and BB was 49 basis points Monday morning, a new record

     

(Business Wire)  Western Digital Announces CEO Succession Plan

 

  • Western Digital Corp. announced that Steve Milligan, chief executive officer and a member of the Western Digital Board of Directors (“the Board”) since January 2013, has informed the Board that he intends to retire as the Company’s CEO. Milligan will continue to serve as CEO until the Board has identified and appointed a successor, and then will remain with the Company in an advisory role until September 2020 to ensure a smooth transition. He will also remain a director on the Company’s Board for a transition period after his successor is appointed.
  • The Board has initiated a search to identify Western Digital’s next CEO, and has engaged Heidrick & Struggles, a leading executive search firm, to assist in the process. In order to facilitate a comprehensive process, the Board will evaluate both internal and external candidates.
  • “The Board and management team are committed to ensuring a smooth transition, and we are grateful that we’ll continue to benefit from Steve’s experience and perspective throughout this process,” said Matthew Massengill, chairman of the Board. “As the Board conducts its search for Steve’s successor, we are focused on identifying a strong leader with a proven track record of operating successfully at scale while defining and executing a growth strategy driven by innovation, operational excellence, and world-class talent development.”

 

(PR Newswire)  Tenneco Reports Third Quarter 2019 Results

 

  • Tenneco Inc. reported third quarter 2019 revenue of $4.3 billion, versus $2.4 billiona year ago, including $1.8 billion from acquisitions.  On a constant currency pro forma basis, total revenue increased 3% versus last year, while light vehicle industry production declined 3% in the quarter.
  • Third quarter EBIT was $148 millionincluding the acquired Federal-Mogul business, versus $112 million last year.  EBIT as a percent of revenue was 3.4% versus 4.7% last year.   Cash generated from operations was $164 million.
  • Light vehicle production in the fourth quarter is expected to be lower year-over-year by 6%, and the commercial truck market is showing signs of softening in the quarter. In this environment, Tenneco expects fourth quarter revenue in the range of $3.95 billionto $4.05 billion.  Further, the company expects its fourth quarter adjusted EBITDA to be in the range of $295 million to $315 million, including year-over-year margin improvement of approximately 50 basis points in the DRiV division. The company expects the GM labor stoppage to have a negative impact on EBITDA of approximately $35 million.
  • The company has made significant progress on the administrative separation of the two business divisions into two independent companies
  • Tenneco remains committed to the separation of the businesses and continues to execute its plan for the spin off. Additionally, the company is evaluating multiple strategic options to deleverage and facilitate the separation.  Certain of these options could help mitigate the impact of challenging market conditions, which, if current trends were to continue, would likely affect the company’s ability to complete a separation in the mid-year 2020 time range.

 

Reuters)  U.S. Fed cuts interest rates, signals it is on hold

 

  • The Federal Reserve on Wednesday cut interest rates for the third time this year to help sustain U.S. growth despite a slowdown in other parts of the world, but signaled there would be no further reductions unless the economy takes a turn for the worse.
  • “We believe that monetary policy is in a good place,” Fed Chair Jerome Powell said in a news conference after the U.S. central bank announced its decision to cut its key overnight lending rate by a quarter of a percentage point to a target range of between 1.50% and 1.75%.
  • “We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” he said. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”
  • In his news conference, Powell ticked off an extensive list of reasons why he feels the economy is doing well, and likely to continue to do so under the current stance of monetary policy – from robust consumer spending, strengthening home sales, and asset prices he considered healthy but not to a level of excess.
  • The outlook for the U.S. economy continues to be for “moderate” growth, a strong labor market and inflation rising back to the Fed’s 2% annual goal, he said, and only “a material reassessment” of that outlook could drive the central bank to cut rates further from here.

 

01 Nov 2019
Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads were turbulent during the week.  The first half of the week saw tighter spreads, and the OAS on the Corporate Index closed at 106 on Tuesday, the tightest level of 2019.  Spreads traded wider from there on the back of Fed commentary on Wednesday which was followed by a surprisingly weak Chicago PMI reading on Thursday morning leading to a close of 110 for the index on Hallows eve.  The economic news continued to roll in on Friday morning, but this time it was received in positive fashion as employment numbers beat market expectations.  As we go to print amid lighter volumes in corporates most bonds are trading 2-4 tighter which should see the index close right around 108.  If we do close at 108 then spreads will have finished the week unchanged.  Rates too were volatile during the week with the 10yr closing at 1.84% on Monday but it is now trading at 1.73% on Friday afternoon.  This is lower on the week, as the 10yr finished the week prior at 1.79%.

The primary market was somewhat more active this week but finished the month well shy of expectations.  October volume closed at $68.6bln versus dealer projections of $85bln according to data compiled by Bloomberg.  2019 issuance stands at $992bln which trails 2018 to the tune of -6%.

Demand for corporate credit continues to remain robust.  According to Wells Fargo, IG fund flows during the week of October 24-30 were +$4.2bln.  This brings YTD IG fund flows to +$246bln.  2019 flows are up over 9% relative to 2018.

 

 

(Bloomberg) Credit Risk Gauge Drops to Six-Week Low on Bullish Jobs Report

  • Investors pushed the cost to protect a basket of investment-grade company debt against default to the lowest level since Sept. 19 following the unexpectedly strong U.S. jobs report on Friday.
    • The Market CDX Investment Grade index spread fell as much as 2 bps to touch 52.96 bps Friday morning in New York before paring some of the gains to trade at 53.67 bps at 12:30 p.m, according to ICE Data Services. The index narrowed by the most in almost three weeks, data compiled by Bloomberg show.
    • Excess demand for higher-quality bonds and low supply have propelled gains in corporate investment-grade markets. October new IG issues ended at $68.6 billion, falling short of the $85 billion dealer projections by nearly 20%, while cash continues to flow intohigh-grade bond funds.

 

(Bloomberg) Riskiest Junk Debt Still Isn’t Cheap Enough to Lure Buyers

  • Notes rated in the CCC tier, essentially the lowest level in the junk bond market, have grown cheaper since May even as most of the market has grown stronger. Risk premiums, or spreads, on the debt are close to their widest level relative to the tier just above them since mid-2016, according to data compiled by Bloomberg.
  • The weaker performance of the lowest-rated debt underscores how even as investors are reaching for higher returns as the Federal Reserve eases interest rates, they’re still wary of a potential economic downturn and fear that defaults could start to tick higher. The highest tier of junk bonds have gained 13.5% this year, and overall high-yield corporate bonds are up 11.9%, while those rated CCC have gained just 5.7%.
  • CCC debt doesn’t usually perform like this. Because the companies that sell the notes are already so close to defaulting, CCC bonds are typically hit harder than the broad market during a market downdraft. When the market recovers, the securities often perform much better. The debt plunged in early 2016 when energy prices dropped, but went on to notch huge returns for the year — 31.5% to the broader market’s 17.1% — as oil prices started recovering.

This year, CCC bonds are performing worse than the market even as the overall supply of the lowest-rated notes has been shrinking. There are about $156 billion of those bonds outstanding today, down from $167 billion in February. So far this year, CCC rated companies have sold around $24 billion of debt, less than the same period for each of the previous two years, according to data compiled by Bloomberg.

 

Bloomberg) Top Fed Officials Hammer Home Message That Rates Are on Hold

  • Federal Reserve Vice Chairman Richard Clarida reinforced the central bank’s new message this week that interest rates are on hold, saying that both monetary policy and the U.S. economy are “in a good place,” though some risks remain.
  • “We have a favorable outlook for the economy,” Clarida said Friday in an interview with Jonathan Ferro and Tom Keene on Bloomberg Television. “We think the economy is in a good place, we think monetary policy is in a good place.”
  • He repeated that message in a lunchtime speech at the Japan Society in New York, with Fed Vice Chairman for Supervision Randal Quarles delivering a similar signal at an event at the same time at Yale University in New Haven, Connecticut.
  • The vice chairs’ overlapping remarks hewed closely to what Chairman Jerome Powell said earlier this week after the Fed cut rates for a third time this year, signifying a strong consensus at least among the Board of Governors. The Fed has acted to protect a record U.S. economic expansion amid headwinds from trade uncertainty and global weakness, while the domestic economy has been holding up.
25 Oct 2019
Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Spreads are tighter to the tune of several basis points on the week while Treasury rates crept higher. The OAS on the Bloomberg Barclays Corporate Index was 110 on Friday morning after having closed at 112 the week prior. Spreads have continued to grind tighter throughout the day as we go to print on Friday afternoon and the close on the index OAS is likely to come close to touching the year-to-date tight of 108. Treasury rates are set to finish the week higher with the 10-year up 5 basis points on the week.

The primary market continued its October trend with another week of lackluster supply. Weekly new issue volume was just shy of $14bln pushing the monthly total to $39.5bln according to data compiled by Bloomberg. 2019 issuance stands at $963bln trailing 2018 by nearly 8% on a relative basis.

According to Wells Fargo, IG fund flows during the week of October 17-23 were +$4.4bln. This brings YTD IG fund flows to +$242bln. 2019 flows are up 9% relative to 2018.

 

 

Bloomberg) Bond Funds Learn to Exploit Ratings System to Buy Riskier Debt

  • In today’s low interest-rate world, investment-grade bond funds face an all-too-familiar trade-off: buy risky debt to improve returns or play it safe and underperform.
  • In particular, funds are loading up on bonds where ratings firms are split on whether they’re investment grade or junk. While reasonable people can disagree about which one is right, for a growing number of firms, the answer is always the same: the higher one.
  • The practice has obvious advantages. With high-grade corporate bonds yielding less than 3% on average, managers can pick up an extra half-percentage point on split-rated debt. And funds can say they’re invested in safe assets while running a portfolio that actually looks a lot like a junk bond fund.
  • Granted, managers have always had the discretion and the flexibility to choose which ratings standards to follow. The methodology is there for all to read in the fund’s prospectus, though it’s often tucked into the fine print. Then, there’s the question of how much stock to put into ratings anyway. Many managers lean on their own analysis to determine a bond’s credit risk.
  • That extra yield comes with a price. Historical data from S&P shows that lower initial ratings correspond with higher rates of default. The gap is notably stark in the divide between investment grade and junk. Ten-year default rates on bonds with BB ratings are double those with BBB grades.

 

(Bloomberg) Corporate Bond Syndicates Yawn Amid Sleepiest October in Years

  • S. investment-grade debt sales are expected to miss estimates for October — by a lot.
  • Just $39.5 billion of new debt has been sold as of Thursday, compared to initial forecasts calling for $85 billion. This projection, put together by compiling dealer estimates, was revised lower mid-month to around $65 billion and now even that may be a stretch.
  • Volume is the lowest since October 2013, when $41.9 billion of blue-chip company bonds was sold. There are still five trading days left, but that narrows to two when you consider Fridays are often blank, Wednesday is a Fed decision day and Thursday is Halloween.
    • The following factors likely play a role.
    • Big banks have been absent. Of the top 10 U.S. banks, just Bank of America Corp. and Wells Fargo & Co. have issued new debt, together totaling $10. 5 billion. Typically there is more, especially when financial institutions report better-than-expected earnings as Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. have.
    • Earnings season. Issuers and investors want to see how well companies have been doing. Buyers want to know about the recent quarter and fourth quarter outlook, considering the geopolitical risks such as the U.S.-China trade war and Brexit
    • Muted merger and acquisition activity. It’s widely understood that M&A issuance is down, but overall the calendar just seems lighter. Every once in a while there is a whisper about T-Mobile USA Inc., but at the moment that is looking more like a 2020 story.
  • Restart
    • Issuance will begin to pick up next week, albeit from a pretty low bar set in the last few weeks. Desks are expected to front-run the Fed and complete the bulk of next week’s debt issuance on Monday and Tuesday.
    • There are a plethora of companies expected to report next week. The week after next, earnings will subside and with the bulk of the reports released, more candidates will consider selling debt. The first week of November is when the real ramp up should occur.
    • The fact that October is running about 54% behind estimates doesn’t come as a surprise since actual supply has been missing weekly estimates for five weeks in a row. That trend is going to break as Wells Fargo’s $6.5 billion deal catapulted this week to $13.7 billion, in line with estimates of $15 billion area.

 

25 Oct 2019
High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.7 billion and year to date flows stand at $21.7 billion.  New issuance for the week was $5.6 billion and year to date HY is at $209.4 billion, which is +33% over the same period last year.

 

(Bloomberg)  High Yield Market Highlights

  • S. junk bond returns hit a new peak of 11.853% this year, the highest since 2016, amid a hunt for yield by investors. Junk bonds have rallied for 11 straight days, the longest winning streak since April, according to Bloomberg Barclays index data.
  • BB bond returns also rose to a high of 13.433%
  • Junk bond yields also fell to 5.56%, approaching a 20-month low of 5.55% hit on Sept. 23
  • BB yields are 3.85%, near the record low of 3.82% reached on Oct. 21
  • Spreads were largely unchanged moving in tandem with 5Y UST
  • Investors are pouring cash into the asset class.
  • The rally may run out of steam Friday as oil prices are lower and stock futures mixed

 

(Bloomberg)  Cracks in Leveraged Credit Are Widening

  • S. leveraged credit markets are coming under increasing pressure amid price swings, ratings downgrades and selling by CLOs, according to a report from Morgan Stanley.
  • Strategists led by Srikanth Sankaran identified the increased frequency of big price moves in loans and bonds even outside stressed credits, amid a number of pockets of weakness
  • In loans, about $48b of notional debt representing 4.2% of the leveraged loan index now trades below 80 cents, compared to $14b and 1.3% a year ago
  • The sub-90 cash price bucket also increased to 9.8% from 3.2% in the same period, according to the report
  • “Beneath the veneer of relative spread resilience and muted realized defaults, the weak links in the leveraged credit markets are coming under pressure,” the strategists wrote in the report
  • Selling pressure from CLOs has exacerbated the loan price swings, and willingness to sell is particularly high in CCCs
  • “CLO managers are net sellers of large price moves, especially in lower-rated names,” the strategists wrote

 

(Wall Street Journal)  Wave of Financial Stress Hits Low-Rated Companies

  • An array of business challenges are hitting low-rated companies across the U.S. economy, driving selling in the bottom tier of the corporate-debt market that contrasts with gains in stocks and other riskier assets.
  • In recent months, consumer demands for wireless phones and high-speed internet have helped push one landline telecom company, Windstream Holdings Inc., into bankruptcy protection and another, Frontier Communications Corp., into restructuring talks with its creditors.
  • Meanwhile, competition from cheap natural gas and renewable-energy sources has caused at least seven coal producers to file for chapter 11 protection over the past year. Opioid lawsuits and the threat of legislation that would curb surprise medical bills have exposed vulnerabilities at some highly leveraged health-care companies. Retailers continue to be pressured by the shift to online shopping. And a wave of financial distress has again hit the oil patch due in part to persistently low commodity prices.
  • Taken together, these developments have caused yields, which rise when bond prices fall, to climb for months on the lowest-rated group of corporate bonds. Unusually, that has happened even as yields have fallen on higher-rated junk bonds.
  • Investors and analysts closely watch junk bonds because companies with subpar credit ratings tend to be affected by economic problems sooner than others. Right now, many remain confident that the problems befalling certain companies aren’t symptomatic of broader economic challenges. Still, others worry that cracks at the very bottom of the market shouldn’t be taken lightly and could ultimately spread to a larger group of assets.
  • “There are specific names and specific subsectors where things are not working,” said Oleg Melentyev, a credit strategist at Bank of America Corp.
  • Melentyev doesn’t think the problems facing the lowest-rated businesses will spill over into the broader market. Still, he said, it is difficult to know for sure because “you have too many yellow signs, warning signs, around.”
18 Oct 2019
High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

CAM High Yield Market Note

10/18/2019

 

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.9 billion and year to date flows stand at $20.0 billion. New issuance for the week was $4.1 billion and year to date HY is at $203.8 billion, which is +33% over the same period last year.

 

 

(Bloomberg) High Yield Market Highlights

 

  • A six-day rally in U.S. junk bonds is poised to run out of steam as investors digest more corporate earnings and as stock futures drift on data showing slowing growth in China.
  • Returns on BB junk bonds hit a new high of 13.189% as investors continue to scramble for higher-quality junk debt
  • BBs are the second best performing asset class in fixed income after BBBs, which have returned 14.31%
  • The overall junk bond index extended gains for the sixth straight session to 11.635%. The year-to- date high was 11.809% on September 23
  • Issuance has slowed this week as the earnings season keeps companies in blackout
  • Junk bond index yields rose 2bps to close at 5.67%, while spreads held steady at 380bps over U.S. Treasuries
  • BB yields eased to 3.96% after reaching a six-year low
  • CCC yields rose 4bps to 10.97%  

 

  • (Bloomberg) Aecom Reaches $2.4 Billion Deal for Management Services Unit

 

  • Aecom, targeted by activist investor Starboard Value, agreed to sell its management services division to a consortium of private equity firms including Lindsay Goldberg and American Securities for $2.4 billion.
  • The Los Angeles-based firm, one of the world’s top engineering and design groups, plans to use the proceeds from the sale to reduce debt and to repurchase stock, it said in a statement Monday, confirming an earlier report in Bloomberg News. The transaction is expected to close in the first half of fiscal year 2020, it said.
  • “We are extremely pleased with today’s transformative and value-enhancing announcement, which significantly accelerates our planned debt reduction and commitment to repurchase stock,” Michael Burke, AECOM’s chairman and chief executive officer, said in a statement.
  • Aecom announced plans to spin off its management services unit in June. It argued at the time that the move would create a leading government services company for its clients, including the U.S. Departments of Defense and Energy, by leveraging its expertise in areas such as intelligence, cyber-security and information technology.

 

Business Wire) AMC Entertainment Selects Sean Goodman as Its New CFO

 

  • AMC Entertainment announced the hiring of Sean Goodman, currently CFO of Fortune 500 company Asbury Automotive Group (NYSE: ABG), who will commence working with AMC as Executive Vice President – Finance on December 2, 2019. Current AMC CFO Craig Ramsey will retire on February 28, 2020, in a long-envisioned move.
  • During the overlap, the two executives will work closely together, and Goodman will assume the Chief Financial Officer title upon Ramsey’s retirement. The Company expects an orderly, easy and seamless transition.
  • After an extensive and comprehensive national search, AMC has tapped Goodman, 54, to be Ramsey’s successor. Goodman has more than 30 years of finance experience including leading Financial Planning and Analysis as well as Business Development at Home Depot in Atlanta, was an investment banker at Morgan Stanley in London and worked for Deloitte & Touche in South Africa and New York. He has U.S. public company CFO experience at Asbury Automotive Group. In addition to his almost 20 years working in the United States, Goodman has extensive international work experience in Europe, Asia and Africa.
  • In early February, Craig Ramsey will achieve a milestone 25th anniversary in leadership roles at AMC, including having become its CFO in the year 2000. His eventual retirement has long been in the executive succession planning process for AMC.
  • Adam Aron, AMC CEO and President said, “I cannot thank Craig Ramsey enough for his longstanding service to AMC, and the many vital contributions he has made as one of our most key executives. Our company has greatly benefited from his distinguished career, which has been marked by integrity, ability and common sense. At the same time, I am absolutely thrilled that we have been able to attract to AMC Sean Goodman who surely will help us to propel AMC forward in the years ahead. As we recruited him to join AMC, the sharpness of his mind, his strategic clarity, his extensive international experience and authentic leadership style were all quite evident. It is a terrific outcome that we have added such a superb top tier talent to AMC’s executive team.”

 

(Business Wire) Geysers Power Company, LLC Announces Senior Secured Notes Offerings

 

  • Geysers Power Company, LLC (“GPC”), an indirect wholly owned subsidiary of Calpine Corporation and the owner of 13 Geysers geothermal power plants and related assets, announced that it intends to offer Senior Secured Notes, Series A, due 2039 and Senior Secured Notes, Series B, due 2039 in a private placement to qualified institutional buyers. Prior to consummating the notes offerings, GPC and certain other Calpine Corporation subsidiaries (collectively, the “Geysers Entities”) involved in the geothermal power generation business will each be released from current guarantee obligations in respect of Calpine Corporation’s indebtedness and the related liens encumbering the Geysers Assets will be released and no longer available to satisfy creditors of Calpine Corporation. The notes will be guaranteed by the Geysers Entities. The notes and related guarantees will be secured equally and ratably with the indebtedness under a new seven-year senior secured revolving credit facility and a new ten-year senior secured term loan facility in an estimated aggregate principal amount of up to $320.0 million and $400.0 million, respectively (which GPC intends to enter into concurrently with the consummation of this offering) and other indebtedness that is permitted to be secured by such assets, by a first-priority lien on substantially all of GPC’s and the guarantors’ existing and future assets, subject to certain exceptions and permitted liens.
  • GPC intends to use the proceeds from the offerings, together with borrowings under the new term loan facility and letters of credit issued under the new revolving credit facility, to (i) fund a debt service reserve account and a major maintenance reserve account, (ii) pay costs associated with the offerings and entry into the new revolving credit facility and the new term loan facility, (iii) pay a dividend to Calpine Corporation (the majority of which Calpine Corporation intends to use to repay a portion of its existing indebtedness, and any excess funds from such dividend may be used by Calpine Corporation for general corporate purposes) and (iv) fund working capital, ongoing capital requirements and general corporate purposes of the Geysers Entities.

 

 

 

18 Oct 2019
Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Spreads are tighter on the week amidst positive vibes in risk markets and the lack of meaningful new corporate supply.  The OAS on the Bloomberg Barclays Corporate Index is 113 on Friday morning after having closed at 115 the week prior.  Treasury rates have risen substantially since the beginning of October and the 10yr spent much of the week wrapped around 1.75%.

The primary market was subdued during the shortened week as the bond market was closed Monday for a federal holiday.  Weekly new issue volume was $10bln pushing the monthly total to $25.8bln according to data compiled by Bloomberg.  2019 issuance stands at $949bln.

According to Wells Fargo, IG fund flows during the week of October 10-16 were +$4.3bln.  This brings YTD IG fund flows to +$238bln.  2019 flows are up 9% relative to 2018.

 

(Bloomberg) Chief of Exelon Utility Business Retires Amid Federal Probe

  • The head of Exelon Corp.’s utility unit has abruptly retired amid a federal probe involving its lobbying in Illinois.
  • Anne Pramaggiore, senior executive vice president and chief executive officer of Exelon Utilities, is leaving “effective immediately,” the company said in a statement Tuesday. Calvin Butler Jr., chief of Exelon’s Baltimore Gas and Electric utility, was named as her interim replacement.
  • Pramaggiore’s departure comes less than a week after Exelon disclosed in a regulatory filing that it received a subpoena from federal prosecutors asking for information related to communications with Illinois State Senator Martin Sandoval. In July, Exelon disclosed it received a subpoena related to its lobbying activities in Illinois.
  • The Chicago Tribune reported earlier this month that federal agents had raided Sandoval’s office and were searching for information related to concrete and construction businesses and lobbyists and public officials. Officials were also looking for “items related to any official action taken in exchange for a benefit,” the Tribune reported, citing documents released by the Illinois Senate.
  • Exelon’s statement on Pramaggiore’s retirement Tuesday didn’t reference the subpoenas. Nor did it give a reason for her departure.
  • “We thank Anne for her valuable service,” Exelon CEO Chris Crane said in the statement. “We are confident this will be a smooth transition.”

 

(Bloomberg) High-Grade Corporate Bonds Trade Tighter as New Debt Sales Slump

  • Spreads on new high-grade corporate bonds tightened in secondary trading as debt issuance missed estimates for the fourth straight week.
    • Further outperformance in a market that has already enjoyed a 13% return this year should continue given the dearth of new supply and consistent fund inflows
      • Investors added $2.9 billion for the week ended Oct. 16, Refinitiv’s Lipper US Fund Flows data show, adding to $1.8 billion the prior period
    • All eight of the fixed-rate tranches sold this week are trading tighter, according to Trace data reviewed around 10 a.m. on Friday
    • Primary market sales disappointed again this week, with just $10 billion priced against estimates calling for $15 billion to $20 billion
      • 40% of this week’s volume was from one borrower — Bank of America’s $4 billion priced in two parts
      • Seven of eight bonds sold this week were from financial companies
    • Next week’s preliminary forecast calls for a total in the $15 billion area, with the possibility for an upside surprise should more banks come to the market
      • With 27% of the S&P 500 index companies reporting earnings next week, more corporate issuance is expected
      • Financial companies have dominated recent weeks
15 Oct 2019
Insight, Investment Grade Quarterly Josh Adams - Portfolio Manager 0 comment

2019 Q3 INVESTMENT GRADE QUARTERLY

Investment  grade  credit  markets  have  continued  to  enjoy  strong  performance  in  2019,  although  spreads showed little movement during the third quarter. The Bloomberg Barclays US Corporate Index  closed  the  quarter  at  an  option  adjusted  spread  of  115,  which  is  exactly  where  it  opened.   Coupon income and lower Treasury yields were the driving forces of positive returns during the quarter  as  the  10yr  Treasury  finished  the  quarter  at  1.66%  after  having  opened  at  2.01%.   While  Treasuries finished lower, the path was not linear and there was volatility along the way: the 10yr closed at a low of 1.45% on September 3, before rocketing higher to close at 1.89% on September 13,  a  massive  move  of  44  basis  points  over  the course of just eight trading days. Corporate  bond  returns  are  off  to  the  best  start through the first three quarters of any calendar  year  dating  back  to  2009  when  the  US Corporate Index posted a total return of +17.11%. Through the first 9 months of 2019 the Bloomberg Barclays US Corporate Index had a total return of +13.20%. This compares to CAM’s gross total return of +11.69% for the Investment Grade Strategy.

The Primary Market is Back, Bigly

Lower Treasuries, retail fund flows and foreign buyers who were faced with increasingly negative yields  in  many  local  markets  combined  to  lead  a  resurgence  in  the  primary  market  during  the  quarter.

September was one for the record books as companies issued $158bln in debt, making it the 3rd largest volume month in the history of the corporate bond market. According to data compiled by Bloomberg, issuance through the end of the third quarter stood at $923.6bln, trailing 2018’s pace by 3.9%.

Portfolio Positioning

While we at CAM are pleased with the year‐to‐date performance of our investment grade strategy, we  would  like  to  remind  our  investors  that  this  performance  has  occurred  over  a  very  short  timeframe. We strategically position our clients’ portfolios with a longer term focus and an emphasis on providing a superior risk‐adjusted return over a full market cycle. Amid such a strong start  to  the  year  for  credit,  we  would  like  to  illustrate  to  our  investors  how  we  are  positioning  portfolios for the longer term. While we do not seek to replicate or manage to an index, we do use the Bloomberg Barclays US Corporate Index as a benchmark for the performance of our strategy so this discussion will refer to that index as a tool to compare our relative positioning.

Credit Quality

CAM  targets  a  30%  limitation  for  BBB  exposure,  the  riskiest  portion  of  the  investment  grade  universe. There is an additional target of maintaining an overall portfolio credit quality rating of at least A3/A‐. The US Corporate Index was 50.39% BBB‐rated at the end of the third quarter with an average rating of A3/Baa1. While this high‐quality bias can cause CAM’s portfolio to underperform during periods of excessive risk taking, it should tend to outperform during periods of market stress. One of the tenets of our strategy is preservation of capital and our BBB‐underweight is helpful in achieving this goal for our investors.

Interest Rate Sensitivity

CAM avoids the fool’s errand of attempting to make tactical bets on the direction of interest rates. Instead we manage interest rate risk by positioning the portfolio in intermediate bonds that range in maturity from 5‐10 years. CAM will occasionally hold a security that is shorter than 5 years or longer  than  10,  but  very  rarely  does  so.   By  always  investing  in  intermediate  maturities,  CAM’s  seasoned portfolio is more conservatively positioned than the corporate index with a shorter duration and fewer average years to maturity.

Liquidity

Liquidity is always on our minds at CAM. Maintaining an intermediate maturity profile requires that we sell bonds prior to maturity so we must be sure that we will be able to effectively exit positions. CAM  targets  SEC‐registered  securities  that  have $300  million  minimum  par  amount  outstanding.

Additionally CAM attempts to cap its ownership exposure to 5% of any particular issue. By investing in larger more liquid issues and by limiting exposure to any particular issue it makes it easier to achieve best  execution  when  it  comes  time  to  sell.   CAM’s  US Corporate average ownership exposure per issue held at the $869 million end of the third quarter was 0.7%.

Diversification & Industry Sector Limitations
CAM diversifies client accounts by populating individual separately managed accounts with 20‐25 positions.   Additionally  CAM  imposes  a  20%  exposure  limitation  at  the  “sector”  level  and  a  15%  limitation at the “industry” level. As an example, “Capital Goods” is at the sector level and beneath that  sector  there  are  individual  buckets  at  the  industry  level,  such  as  Building  Materials.

CAM invests in bonds that we believe will add value to the performance of the portfolio. Because CAM does not manage to, or attempt to, replicate an index it does not encounter the problem of over‐diversification or of owning the bonds of an issuer simply because the issuer represents a large weighting within an index.

The Fed Strikes Again, Now What?
The FOMC lowered its target for the Federal Funds Rate twice during the quarter, once at its July meeting and then again in September. The current implied probability of a cut at its meeting at the end of October is around 60% but closer to 75% for the December meeting, as market participants’ views remain mixed on the possibility of further cuts in 2019. We believe that the Fed will abide by its commitment to data dependency. Economic data showing strength or resiliency will result in no further cuts in 2019, but data showing a deteriorating economic picture could mean that more cuts are on the horizon.

In  our  view,  the  biggest  factor  for  the  performance  of  risk  markets  through  year  end  hinges  on  trade. We believe that the markets are pricing in a China trade resolution over the medium term. If this does not come to fruition or if the U.S. and China become more antagonistic then a negative market reaction becomes more likely. Aside from being positioned more conservatively than the market  as  a  whole,  with  considerably  less  BBB  exposure  and  a  markedly  shorter  duration,  we  believe that we are furthermore better positioned regarding general economic sensitivity as well as, more specifically, Chinese trade exposure.

While the investment grade credit market has performed well, caution still rules the day. We will continue  to  position  portfolios  accordingly  with  an  eye  toward  the  longer  term.  Thank  you  for  entrusting us with the responsibility of helping you to achieve your financial goals.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without  notice,  as  are  statements  of  financial  market  trends,  which  are  based  on  current  market  conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the  value  generally  declines.   Past  performance  is  not  a  guarantee  of  future  results.   Gross  of  advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees  are  disclosed  in  Form  ADV  Part  2A.   Accounts  managed  through  brokerage  firm  programs  usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The index is unmanaged and does not take into account fees, expenses, and transaction costs. It is shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness.

15 Oct 2019
High Yield Quarterly, Insight Rich Balestra - Portfolio Manager 0 comment

2019 Q3 HIGH YIELD QUARTERLY

In the third quarter of 2019, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 1.33% bringing the year to date (“YTD”) return to 11.41%. The CAM High Yield Composite gross total return for the third quarter was 2.30% bringing the YTD return to 13.61%. The S&P 500 stock index return was 1.70% (including dividends reinvested) for Q3, and the YTD return stands at 20.55%. The 10 year US Treasury rate (“10 year”) spent most of quarter in rally mode save for a 40 basis points backup during the first half of September. The 10 year finished the quarter at 1.66%, down 0.35% from the beginning of the quarter. During the quarter, the Index option adjusted spread (“OAS”) tightened 4 basis points moving from 377 basis points to 373 basis points. There was a massive 210 basis points of widening that took place in Q4 2018 and since that time, the OAS has tightened 153 basis points. During the third quarter, the higher quality segments of the High Yield Market participated in the spread tightening as BB rated securities tightened 12 basis points and B rated securities tightened 15 basis points. The lowest quality segment, CCC rated securities, widened 78 basis points.

The Banking, Insurance, and Brokerage sectors were the best performers during the quarter, posting returns of 3.72%, 3.51%, and 3.10%, respectively. On the other hand, Energy, Basic Industry, and Other Industrial were the worst performing sectors, posting returns of -4.38%, 1.25%, and 1.69%, respectively. At the industry level, life insurance, P&C insurance, wireless, and banking all posted the best returns. The life insurance industry (8.06%) posted the highest return. The lowest performing industries during the quarter were oil field services, independent energy, pharma, and wirelines. The oil field services industry (-10.72%) posted the lowest return.

the high yield primary market posted $76.8 billion in issuance. Issuance within Communications was the strongest with 25% of the total during the quarter. The 2019 third quarter level of issuance was much more than the $50.8 billion posted during the third quarter of 2018. Through the first nine months of 2019, issuance has already surpassed the $186.9 posted during all of 2018.

The Federal Reserve held two meetings during Q3 2019, and the Federal Funds Target Rate was reduced 0.25% at both meetings. These were the first reductions to the Target Rate in over a decade. Chairman Powell pointed to “the implications of global developments for the economic outlook as well as muted inflation pressures” as reasoning to begin lowering the Target Rate. Following the second interest rate cut, Chairman Powell noted that “weakness in global growth and trade policy have weighed on the economy.” There were three dissenting votes at the September 18th meeting.

That was the highest number of dissents since 2016. However, it is important to note that one of the dissenting votes was in favor of a 0.50% cut rather than 0.25%, and the remaining two dissenting votes were in favor of no change to the Target Rate. As can be seen in the chart above, the Fed dot plot is currently suggesting that rates won’t change through 2020. As of this writing, investors are pricing in a 62.5% probability of a cut at the FOMC October meeting.i  Also shown in the chart is the rate that the market is pricing in through Fed Fund Futures for the next couple of years. Clearly, the Fed is still out of step from what the market is expecting. While we are interest rate agnostic and do not attempt to time interest rate movements, we are very aware of the impact Fed policy has on the markets. Therefore, we will continue to monitor this very important theme throughout the rest of this year and into 2020.

While the Target Rate moves tend to have a more immediate impact on the short end of the yield curve, yields on intermediate Treasuries decreased 35 basis points over the quarter, as the 10-year Treasury yield was at 2.01% on June 30th, and 1.66% at the end of the quarter. The 5-year Treasury decreased 23 basis points over the quarter, moving from 1.77% on June 30th, to 1.54% at the end of the quarter. Intermediate term yields more often reflect GDP and expectations for future economic growth and inflation rather than actions taken by the FOMC to adjust the Target Rate. Inflation as measured by core CPI was trending lower since the 2.4% print in mid-2018. However, the rate has ticked higher on each of the last three reports. The most recent print was 2.4% as of the September 12th report. The revised second quarter GDP print was 2.0% (quarter over quarter annualized rate). The consensus view of economists suggests a GDP for 2019 around 2.3% with inflation expectations around 1.8%.

The economic picture globally is continuing to dim. The Organization for Economic Cooperation and Development (“OECD”) recently cut the global growth outlook while citing concern over trade tensions. The OECD commented that global growth is now at its lowest level in over a decade.ii Additionally, Moody’s has lowered their outlook on global manufacturing to negative noting that most industries are softening.iii However, as the Federal Reserve is easing monetary policy, other central banks are responding as well. The European Central Bank is stepping up stimulus with a rate cut and a restart of a monthly bond buying program.iv Further, the Bank of Japan is more likely to add additional stimulus at their October meeting after Governor Kuroda commented, “We don’t have any preset idea on whether to act next month. But we’re more keen to ease than before since overseas risks are heightening.”v

One matter of particular interest was the funding market dislocation of mid-September that raised concern of the Fed possibly losing control over short-term interest rates.vi  The term “chaos” was used to describe the repo market which saw Treasury general collateral spike 625 basis points overnight to a high print. To put that spike in context, the repo market has more typical fluctuations in the 10 basis points range. The suggested cause of the dislocation was quarterly tax payments which drew down cash reserves at the same time that Treasury supply was increasing for coupon auction settlements.vii The Federal Reserve Bank of New York (“FRBNY”) stepped in to deliver the first sizable ad hoc repo operation since the global financial crisis. This action and subsequent actions taken by the FRBNY leading into quarter-end helped to bring rates back inline. However, it is a situation to be observed over the balance of 2019. “Just to get through this year end, the Fed will have to inject significantly more reserves, and they will need to do it in a manner that doesn’t cause any other dislocations,” said a repo trader at a large Wall Street bank.

Being a more conservative asset manager, Cincinnati Asset Management is structurally underweight CCC and lower rated securities. This positioning has served our clients well so far in 2019. As noted above, our High Yield Composite gross total return has outperformed the Index over the third quarter and YTD measurement periods. With the market remaining robust during the third quarter, our cash position remained the largest drag on our overall performance. Additionally, our underweight positioning in the communications, banking, and finance sectors were a drag on our performance. Further, our credit selections within the consumer cyclical services, wireless, and healthcare industries hurt performance. However, our underweight in the energy, and pharma sectors were bright spots. Further, our credit selections within the midstream, aerospace/defense, technology, and utility industries were a benefit to performance.

The Bloomberg Barclays US Corporate High Yield Index ended the second quarter with a yield of 5.65%. This yield is an average that is barbelled by the CCC rated cohort yielding 10.73% and a BB rated slice yielding 4.05%. Equity volatility, as measured by the Chicago Board Options Exchange Volatility Index (“VIX”), jumped over 10 points to 25 at the end of July and beginning of August on escalating trade tensions with China. The VIX worked its way lower for the balance of the quarter finishing at 16. The third quarter had six issuers default on their debt. The twelve month default rate was 2.52% and has been driven by default volume in the energy sector. Excluding the energy sector, the default rate would fall to only 1.21%.viii Additionally, fundamentals of high yield companies continue to be mostly good. From a technical perspective, supply has increased from the low levels posted in 2018, and flows have been positive relative to the negative flows of 2018. Due to the historically below average default rates, the higher yields available relative to other spread product, and the diversification benefit in the High Yield Market, it is very much an area of select opportunity that deserves to be represented in many client portfolio allocations.

With the High Yield Market remaining very firm in terms of performance, it is important that we exercise discipline and selectivity in our credit choices moving forward. While the first quarter displayed similar returns across the quality buckets, the second quarter began to show investors differentiating a bit on the lower quality spectrum as the CCC bucket under-performed the broader market. This theme has continued through the third quarter. As more differentiating continues to creep into the higher quality buckets, it is expected that opportunities for our clients will be presented. The market needs to be carefully monitored to evaluate that the given compensation for the perceived level of risk remains appropriate on a security by security basis. It is important to focus on credit research and buy bonds of corporations that can withstand economic headwinds and also enjoy improved credit metrics in a stable to improving economy. As always, we will continue our search for value and adjust positions as we uncover compelling situations.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results. Gross of advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees are disclosed in Form ADV Part 2A. Accounts managed through brokerage firm programs usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The index is unmanaged and does not take into account fees, expenses, and transaction costs. It is shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness.

i Bloomberg October 1, 2019, 4:00 PM EDT: World Interest Rate Probability (WIRP)
ii Reuters September 19, 2019: “OECD Cuts Growth Outlook to Post-Crisis Low”
iii Moody’s September 17, 2019: “Outlook revised to negative on lower earnings forecast”
iv The Guardian September 12, 2019: “ECB announces fresh stimulus”
v Reuters September 24, 2019: “BOJ’s Kuroda says any easing will target short-, medium-term rates”
vi Bloomberg September 16, 2019: “Repo Market Chaos Signals Fed May Be Losing Control of Rates”
vii Wells Fargo September 17, 2019: “Repo Running Wild”

viii JP Morgan October 1, 2019: “Default Monitor”

11 Oct 2019
High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at $17.0 billion.  New issuance for the week was $1.1 billion and year to date HY is at $199.5 billion, which is +30% over the same period last year.

 

(Bloomberg)  High Yield Market Highlights

  • The U.S. high-yield bond market is set to extend its first weekly gain in three weeks as trade-talk optimism boosts stock futures and after reports of a missile attack on an Iranian tanker pushed the price of Brent crude to $60 per barrel.
  • Junk bonds posted gains for the second straight session on Thursday, with the Bloomberg Barclays U.S. high-yield index up 0.08% this week and 10.97% YTD; yields have dropped one basis point this week to 5.89%
  • BBs gained 0.03% to take YTD returns to 12.615% and yields dropped to close at 4.20%
  • Single-B yields saw the biggest drop in more than three weeks on Thursday to close at 5.98%, with YTD climbing to 11.294%
  • CCC yields jumped to a more than eight-month high of 11.17% while returns rose by 0.05% to take the YTD to 4.51%
  • Sentiment remains cautious as investors pulled cash from U.S. high-yield funds
  • The primary market activity gained pace yesterday after a sluggish start to the week, pricing three deals

 

(The Philadelphia Inquirer)  Aramark has a new CEO, activist investor becomes vice chair of the board

  • Aramark Corp. on Monday named John J. Zillmer, an executive associated with an activist investor who controls 20% of the Philadelphia company, chief executive, replacing Eric Foss.
  • The food- and uniform-services giant also announced a revamped board of directors, with the appointment of five new independent directors, all with consumer goods and food industry experience.
  • Zillmer had previously spent 18 years at Aramark, rising to be president of global food & support services before departing in 2004. After leaving Aramark, Zillmer, 64, served as CEO of Allied Waste Industries and Univar Solutions, a global chemical and ingredients distributor.
  • “I am extremely excited about the opportunity to rejoin Aramark at such a dynamic time in the company’s history,” Zillmer said in a news release. “I look forward to working closely with the board and the Aramark team to drive growth and value for our employees, customers, partners, and shareholders.”
  • Even though Zillmer left Aramark in 2004, he has maintained his residency in Philadelphia. Current and former Aramark employees who know Zillmer from his previous time at the company said they were pleased to have him back and confident that he would take the company in the right direction.
  • Paul C. Hilal, whose Mantle Ridge L.P. is Aramark’s largest shareholder, will be vice chairman. Hilal and Zillmer both serve on the board of CSX Corp., another of Hilal’s targets. Zillmer is non-executive chairman of CSX’s board. Zillmer also joined Aramark’s board, where Steve Sadove remains chairman.
  • The moves come six weeks after Foss abruptly retired from the Philadelphia company, shortly after activist investor Hilal disclosed that Mantle Ridge had acquired 9.8% of Aramark’s shares and additional interest that gives Mantle Ridge 20% of the company.

 

(Reuters)  Trump says U.S., China have reached substantial phase-1 trade deal

  • S. President Donald Trump on Friday outlined the first phase of a deal to end a trade war with China and suspended a threatened tariff hike, but officials on both sides said much more work needed to be done before an accord could be agreed.
  • The emerging deal, covering agriculture, currency and some aspects of intellectual property protections, would represent the biggest step by the two countries in 15 months to end a tariff tit-for-tat that has whipsawed financial markets and slowed global growth.
  • But Friday’s announcement did not include many details and Trump said it could take up to five weeks to get a pact written.
  • He acknowledged the agreement could fall apart during that period, though he expressed confidence that it would not.
  • “I think we have a fundamental understanding on the key issues. We’ve gone through a significant amount of paper, but there is more work to do,” U.S. Treasury Secretary Steven Mnuchin said as the two sides gathered with Trump at the White House. “We will not sign an agreement unless we get and can tell the president that this is on paper.”
  • With Chinese Vice Premier Liu He sitting across a desk from him in the Oval Office after two days of talks between negotiators, the president told reporters that the two sides were very close to ending their trade dispute.
  • China’s official state-owned news organization Xinhua said that both sides “agreed to make the efforts towards a final agreement.”
  • Trump, who is eager to show farmers in political swing states that he has their backs, lauded China for agreeing to buy as much as $50 billion in agricultural products. But he left tariffs on hundreds of billions of dollars of Chinese products in place.
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