Global credit continues to advance slowly in July amid higher issuance volumes, steeper yield curves and improving oil prices. Investors watched closely as Fed chair Powell testified before Congress, looking for greater clarity on US interest rate policy over the next 12 months. A July rate cut is now all but assured, and Powell appeared to express sufficient concern over global economic strength to suggest additional cuts will follow. Central Bank dovishness, combined with modestly improving economic indicators pushed 10-year yields higher in North America and Europe. Credit spreads generally improved though bank spreads languished on due to heavy Japanese bank issuance and expectations of pending issues from US banks once the current earnings blackout is lifted.
Canadian credit outperformed as a relatively strong domestic macro backdrop was supported by a dovish Bank of Canada policy announcement on Wednesday. Credit generally tightened by 2-4 bp, highlighted by high beta sectors like TMT, REITs and Energy. The primary market in Canada was also very active with $2.2bn of bonds priced across issuers National Bank, First Capital Realty and Northern Courier Pipeline.
Global credit held firm in light of a generally subdued trading week due to the Canadian and US public holidays. US credit finished the week about 2-3 bp tighter although the strong US jobs number on Friday generated a headwind for credit as chances of a 50 bp rate cut in July diminished drastically. The energy sector was the clear underperformer as WTI retraced most of the gains from the past two weeks on concerns of global growth and stockpiles. The primary market was quiet as issuers took the week off. Looking ahead, investors are expecting about $65bn in supply for the month of July, about 30% lower than this time last year.
Canadian credit was generally a couple bp tighter for the week, capped off by substantial full-time jobs numbers on Friday. Credit outperformers included consumer discretionary and financials, both tightening around 4 bp. Canadian employment for June posted strong wage growth and capped off a hot labour market for the first half of the year. Canadian government bond yields rose by around 10 bp on the news, revealing the confidence in the economy and proving the case for steady monetary policy while other global powers turn dovish.
Global markets held firm ahead of the much anticipated G20 meetings over the weekend to cap off one of the strongest June performances in risk assets with the S&P closing the month above 7% while credit tightened by around 20 bp. US credit was about 5 bp tighter for the week with energy and financials outperforming while pharma/health care faltered. Over the weekend the G20 meetings were interpreted as a success with the U.S. and China agreeing to restart trade talks while Russia and Saudi Arabia struck a deal to extend oil production cuts. Primary issuance was quiet with a couple deals of note including Honda and Charter Communications. The first week of July is expected to be quiet in the primary market with the Fourth of July celebrations keeping issuers on the sidelines.
Canadian credit was also about 3-5 bp tighter for the week on the back of global headlines while investors easily digested a rather busy primary market. Domestic issuers printed just under 5bn CAD of paper across four issuers last week. The highlight was Scotiabank printing 1.5bn of a 5-year NVCC at G+152. The deal was very well received with a decent concession and very little outflows of other NVCC or bail-in bonds.
Global risk assets rallied sharply this week on optimism over US-China relations and dovish commentary from the ECB and the Fed. The Fed’s interest rate decision on Wednesday took center stage, keeping rates unchanged while signaling that lower rates could come as soon as next month. Investors took reassurance that central banks will continue to support global markets causing equities to reach all time highs and credit to tighten substantially. US credit spreads tightened by over 10 basis points following the Fed announcement, led by higher beta sectors like autos and industrials. The primary market proved quiet as issuers are content to wait for lower yields. Just under $10 billion of new bonds priced in the US, well below expectations.
Canadian credit lagged the rally, tightening by 5 basis points on average. The energy sector was the top performer, rallying by up to 10 bp due to the sharp rally in oil prices as well as the approval the TMX pipeline. The primary market was steady with approximately $4 billion of supply from five issuers. TD Bank and RBC printed a combined total of $3 billion, with both deals performing well on the break.
Global credit steadily tightened last week on Trump’s decision to call off Mexican tariffs and rising expectations of a Fed rate cut. US credit finished the week 3-5 basis points tighter, led by industrials and autos, while treasury yields fell after Wednesday morning’s inflation data surprised to the downside. The primary market was busy with $29 billion in new issues printed, once again beating weekly estimates.
It was a busy week for Canadian credit as the new issue floodgates opened on the back of solid macro tone and low yields. Eight issuers combined for a total of $4.8bn including tranches from Laurentian Bank, Fairfax, John Deere and Keyera. Most deals were well received and credit spreads generally traded 3 bp tighter even with the glut of new paper. This week could set the narrative for the months to come with the FOMC, the ECB and the BOJ all holding important meetings. Investors are expecting a very dovish outlook on global central bank policy, thus creating headline risk if any of the countries deviates from expectations.
Global credit rebounded from oversold levels last week amid softer trade rhetoric from the White House, dovish Fed expectations and disappointing jobs data. US investment-grade spreads were 5-8 bp tighter led by financials and autos. The strong tone fuelled primary issuance with $25 billion of new bonds priced across 24 deals. Friday’s US payrolls report severely missed expectations, posting an increase of just 75k jobs compared to estimates of 175k. Treasury yields fell to new lows for the year as the jobs print all but solidified expectations for a Fed rate cut by July.
Canadian credit enjoyed a similarly strong week although indices demonstrated a lag effect by posting negative returns. The Canadian jobs report on Friday was upbeat for the second month in a row, with the unemployment rate falling to the lowest on record at 5.4%. In contrast to the US, the robust picture on the Canadian economy tempered expectations of a near term rate cut and sent the Canadian dollar to a 3-month high. Three issuers printed a total of $1.25 billion this week, highlighted by the inaugural subordinated note issuance by Canadian Western Bank which printed 250mm of a 10NC5 note at +235bp and traded 3 bp tighter on Friday.
Trade wars remained in the headlines last week with China retaliating against US tariffs while the White House initiated new tariffs against Mexico over immigration concerns. Treasury yields sank to their lowest levels since 2017 on concerns that protracted trade disputes on multiple fronts will take its toll on the US economy. US credit spreads were roughly 5-10 bp wider with autos widening by up to 30 bp due to the sector’s production integration with Mexico. In all, May proved to be one of the worst months of the past three years for US credit, with investment grade spreads widening 22 basis points on average. This has left markets feeling technically oversold, and any easing of negative headlines could lead to a bounce tighter.
Canadian credit, which had remained largely insulated from US widening, finally showed signs of breaking down last week with spreads widening by 5 bp across most sectors. On Wednesday, the Bank of Canada held rates unchanged while remaining upbeat about the domestic economic outlook. Government bond yields bounced momentarily on the news but were dragged down by the overwhelming risk-off tone. TD Bank, Honda Canada and Choice Properties REIT all came to market on Tuesday this week to print a combined $3bn of bonds. The heavy supply proved difficult for the market to digest, contributing to the overall tone of wider spreads.
Global markets, including credit, remained on the back foot last week as the trade dispute between the US and China showed no signs of calming. President Trump continues to talk up the billions in Chinese tariffs, even as there was good news for Canada and Mexico with the lifting of US steel tariffs for those two countries. Tensions further escalated when the US administration blacklisted Chinese telecom giant Huawei over spying allegations, later suspended for 90 days to allow US companies to adjust their supply chain.
Credit traders were disappointed by the deteriorating relations and took spreads to a 2-month wide. In Europe, sentiment weakened as UK Prime Minister announced her resignation and separatist parties appeared to make headway in European elections. Italian spreads remain under pressure over concerns their budget deficit exceeds EU guidelines and may lead to significant fines. US 10 year bond yields fell to an 18-month low, despite the Federal Reserve having hiked short rates 5 times in the interim. Canadian yields followed but remain a few bp above the lows set in March. Despite the soft tone, corporate new issue supply remains robust in the US, while Canada saw just two deals price during a holiday-shortened week. The lack of supply continues to help buffer Canadian credit from the global turmoil, although cracks appeared late in the week as dealers moved spreads a few bp wider.
Trade rhetoric with China and growing tensions with Iran continued to dominate headlines last week, causing risk markets to lurch back and forth in response. Volatility was less pronounced than earlier in the month, and while we finished the week with moderately wider credit spreads, there is a sense the worst of the selling is behind us. Heightened tension in the Middle East pushed oil prices higher, which were supportive of the US energy sector spreads. It was a busy week for new bond issues with over $30 billion of corporate debt pricing. Spread concessions remain minimal, and after-market performance was mixed. The financial sector, in particular, appeared to be weighed down by hefty supply. Investment grade markets continue to enjoy above-average inflows as investors rotate out of stocks to lower-risk assets, which is providing overall support for credit spreads.
In Canada, supply remains light, which is keeping domestic credit markets positive in May despite falling interest rates and weaker international markets. The knock-on effect of surprisingly strong Canadian employment numbers released on May 10th continues to provide support. In an interview late Friday, governor Poloz cautioned against a presumption that rate cuts were inevitable, saying that the natural path of rates is higher once current headwinds dissipate. Canadian bond yields are opening 5-6bp higher this morning as a result.
The US-China trade war dominated headlines last week with both sides accusing each other of broken promises. Despite attempts to maintain a positive spin, escalating tariffs suggest talks are not going well. Combined with the heavy new issue supply of the last couple of weeks, global credit struggled to cope, and spreads endured their worst week of 2019. Bristol-Myers Squibb ($BMY) and IBM ($IBM) both brought $19 billion and $20 billion deals respectively to fund recent acquisitions. Supply expectations continue into this week with Fidelity Information Services and T-Mobile expected to bring sizeable deals. Despite the difficult macro tone, corporate bond funds are still seeing inflows as investors rotate out of stocks into lower volatility assets.
The Canadian credit index finished broadly unchanged for the week as foreign banks and energy/mining widened 2-4 bp while Real Estate paper tightened. Statistics Canada reported on Friday that 106,000 new jobs were created in April, the biggest monthly gain on record, and the buoyant economic news helped Canadian markets to outperform. The technical picture remains favourable in Canada with corporate supply struggling to keep pace with bond maturities and inflows. Three new issues priced this week and all were well received. Friday also saw the first Canadian dollar high yield deal of the year: Cominar REIT ($CUFCN) priced at a 4.5% coupon priced at $100, and quickly traded as high as $101.
Global credit spreads finished the week generally unchanged as mixed economic data, a rate decision from the US Federal Reserve and a fall in oil prices failed to move markets in a meaningful way. The Fed reiterated its patient stance on interest rates and downplayed the chance of a “pre-emptive” cut in 2019. Traders were left marginally disappointed though 2-year treasury yields remain range-bound over the past five weeks. New issue supply weighed on US markets while European spreads finished the week slightly tighter. There is a cautious tone to start the week after US-China trade negotiations appear to break down on Sunday.
Canadian credit outperformed on the back of solid earnings and a lack of new issue supply. Spreads generally tightened by about 2 basis points, pushing the Bloomberg Canadian Investment Grade credit index to new tights for the year. Retail inflows to bond funds combined with a surprisingly quiet new issue calendar contributed to the positive tone for spreads. Interest rates finished the week higher after domestic economic data came in better than expectations.
Risk assets continued to push higher amidst strong earnings across most sectors, enabling equities to reach record highs and credit spreads to tighten. The auto sector led the way after Ford announced better-than-expected earnings – benchmark spreads finished the week up to 50bp tighter. Corporate bond issuance was surprisingly light, with many companies in blackout due to earnings releases. Interest rates fell while yield curves steepened after a surprisingly strong Q1 GDP print was overshadowed by benign inflation numbers.
Canadian headlines were dominated by the Bank of Canada rate decision on Wednesday. Issuance was relatively light with RBC and OMERS continuing the trend of Canadian issuers accessing outside markets. Rogers Communications ($RCICN) was the notable issuer this week, printing $1.25bn of 30yr paper South of the border while also tapping C$1bn in the Canadian market on the same day. Both issues were well received from investors, trading a couple bp tighter by week-end.
Global credit spreads were able to finish out a holiday-shortened week with modest tightening in Canada and Europe while the US was unchanged to slightly weaker. In the US, healthcare bonds came under pressure with concerns that Democrats are looking to reform the industry post-2020 elections. CVS, UnitedHealth and Cigna spreads were all 5-10 basis points wider for the week. New issue activity exceeded expectations as the US banks used solid quarterly earnings reports to springboard new deals. Most deals priced with increased concessions due to softer demand, and were able to close marginally tighter in secondary trading.
Canadian credit continues to catch up to US spread tightening from earlier in the month. Spreads finished the week 3-5bp better on the back of strong inflows into corporate bonds and surprisingly robust retail sales. Bank of America ($BAC) was the sole issuer in the Canadian primary market last week, printing $1bn of 6NC5 bonds. The deal was moderately attractive compared to BAC’s USD paper and finished the week trading 2 bp tighter.
Despite a strong first quarter there has been a growing sense that the pain trade in credit was tighter spreads, and last week saw a strong move to coincide with government yields moving back to the top of the trading range. A lack of bad news provided sufficient catalyst, though improved Chinese economic data, a long extension to the Brexit deadline and lower than expected new issue supply all contributed to the optimism. Spreads were anywhere from 5-10 bp tighter, led by Financials and Energy. Saudi Arabia’s Aramco (A1/A+) provided most of the excitement in terms of new US Dollar deals, issuing $12bn across 5 tranches. A “fear of missing out” mentality undoubtedly led to an order book in excess of $85bn, but in the end the deal priced too far through Saudi sovereign spreads and has struggled to perform in secondary trading.
Canadian credit tightened given positive macro economic developments around the world. Credit spreads tightened by 5 bp on average, led by Maple issuers and Financials. The biggest underperformers were low beta product like Infrastructure and Utilities.
Global credit markets proved resilient in the last week of March, finishing on a positive note despite fears of slowing global growth, yield curve inversion, a lack of Brexit resolution, and ongoing global trade issues. US credit spreads finished the week modestly tighter as the market comes to terms with a lower range for treasury yields and dovish talk from the Federal Reserve. New issue activity was brisk, capped by an $11 billion issue from communications giant Broadcom on Friday.
Stronger-than-expected GDP figures for January helped Canadian credit finish the month on a positive note. The beat sent government bond yields 7 bp higher on Friday while futures prices cut the odds of a 2019 rate cut by 50%. Telus ($TCN) led the way on the new issue front with a $1 billion deal launched on Friday. Attractive pricing and expectations that this would be the only deal from Telus this year drove heavy investor demand, fuelling the largest book of investors for a non-financial deal in Canadian history. The deal performed very well and traded 4 basis points tighter to close out the week.
Global credit outperformed other risk assets given turbulent headlines around the world this week. Fed Chair Powell’s surprisingly dovish tone, fears of a global growth slowdown and a growing fear of a hard Brexit kept investors on their toes. Mr. Powell took all rate hikes off the table in 2019 while guiding its balance sheet tapering on Wednesday, sending Treasury yields significantly lower and triggering fears of a growth slowdown in the US. Weak manufacturing data out of Europe later in the week compounded to the growth fears, triggering a sell-off in equities to close the week. Despite the macro developments, IG credit finished the week either side of unchanged while Financials were 2-3 bp wider due to the fall in interest rates.
Canadian credit finished the week relatively unchanged as REITs and Financials widened out on fears of slowing growth while Utilities and new issues performed well. It was a busy week for the Canadian primary market, printing just under $3bn of credit focused mostly in the long end of the curve. Most of the deals performed well with decent concessions and very small investor fills. Inter Pipeline Inc. was the highlight of the week, issuing their first 60NC10 Hybrid at 6.875% and traded up to 26 bp tighter on the break.
Despite mixed macroeconomic news including Brexit, trade negotiations and slowing economic data, global credit and equity markets proved resilient. The U.S. reported solid retail sales and CPI data early in the week, providing confidence in investors without potentially altering the Fed’s dovish course on rate normalization. It was another active week in the primary market, printing $25bn of paper, $13bn of which was bank issuance. Bank of America, Citigroup and JPM all issued deals that launched with a decent concession and are trading 2-3 bp tighter with little selling on the back of the deals. European credit was well bid given a tumultuous week for Theresa May. After May’s revised deal was defeated earlier in the week, the second and third votes of the week ruled out a “no-deal” Brexit on any future date and an A50 extension was passed.
Canadian credit traded either side of unchanged throughout the week as widening of new issue curves balanced out tightening in front end secondary credit. This week saw $1.5bn of issuance from Ford, Canadian Western Bank and CP Railway. Most of the issues were met with solid demand and pushed out spreads in their respective secondary curves while the new issues were a couple tighter.
The upward momentum in credit markets paused last week as mixed trade headlines, disappointing economic data and heavy new issue supply caused spreads to modestly widen. Investors struggled to digest just under USD 40 billion of new supply last week, well ahead of expectations, and recent jumbo deals such as Pfizer, Merck and Dell all finished the week trading wider than launch. The European Central Bank reacted to a spate of weaker economic data by announcing long-term financing incentives to Banks and suggesting rates would stay lower for longer.
Canadian credit outperformed, but the overall tone was defensive and we finished the week with spreads modestly wider. A late week sell-off in oil prices and a solid slate of new issues kept credit markets on the back foot. Investors received just over C$5 billion of primary issuance balanced across the Financial, Auto and Utility sectors. Bank of Montreal added to recent bank deals with C$2 billion of 5yr bail-in paper. Most of the deals finished the week flat or slightly wider than issue due to general weakness and heavy supply.
Global credit edged modestly higher last week on hopes that US-China trade negotiations will show meaningful progress. US credit markets lagged other markets as new issue supply combined with a holiday-shortened week stemmed any meaningful rally. European credit, on the other hand, continues to move tighter on hopes the British government will choose to delay rather than face a messy “hard” Brexit. The new issue market kept up its torrid pace, and with new issue concessions proving elusive investors are forced to be selective.
Canadian credit enjoyed a positive week with Energy leading the way on higher oil prices and REITs performing as recent new issues demonstrate the depth of demand for the sector — two new deals priced for a total of $1.45bn. Enbridge Pipelines issued $1.2bn of 10y and 30y tranches while Artis REIT issued a small 2yr fixed with a large concession to secondaries. Both deals performed well with Artis, in particular, finishing the week 12 basis points tighter from launch spread.
Credit markets maintained a positive trajectory throughout the week as another government shutdown was avoided and US-China trade talks reportedly made progress. A disappointing retail sales number on Thursday, the lowest print in ten years, sent US treasury yields tumbling back towards the lower end of their 6-week range. Credit spreads edged tighter throughout the week but were hindered somewhat by steady new issuance. The investment grade primary market printed just under $40bn of new paper this week, highlighted by Altria’s $11.5bn jumbo multi-tranche deal to finance its acquisition of electronic cigarette company JUUL. The deal managed to build a $50bn book and traded up to 12 bp tighter than issue. Away from Altria however concessions were light and often there was not much value to be found, adding to signs the current risk-rally may be close to running its course.
Canadian credit traded in a narrow range as a solid slate of earnings and repercussions of positive trade talks balanced out surprisingly weak manufacturing sales. Investors continue to await new issue supply to dislodge sleepy markets as some of the usual suspects (i.e. the banks) are finding cheaper sources of funding in foreign markets. Brookfield Properties was the only deal this week, printing 350mm of a 7yr at a very modest concession. The deal was trading 6 bp tighter by the week’s end.
Signs emerged last week that the global risk rally may be running out of steam as macroeconomic unpredictability crept back into investors’ minds. The State of the Union address on Tuesday was deemed underwhelming as Trump was unwilling to allay fears of another government shutdown next week. Suggestions that US and Chinese leaders would not meet until the end of the month increased chances of a prolonged trade war between the two countries. In Europe, growth expectations continue to decline amid signals that Italy may already be in recession. Scotiabank became the second Canadian bank in two weeks to issue a US $ bail-in note. The new 5-year bond priced right on top of the recent BMO issuance and struggled to hold new issue spread given the generally soft tone.
Canadian credit was similarly affected by global events but managed to close the week better given solid technicals. High beta financials and maples underperformed while deposit notes and utilities were mostly tighter. Canadian National Railway was the sole Canadian issuer of the week, printing 800mm between two tranches. The deal priced right on the screws, trading about 1 bp wider at the end of the week.
Decent corporate earnings and a surprisingly dovish US Fed spurred global credit markets to continue the 2019 rally last week. On Wednesday the Fed appeared to acquiesce to White House pressure, holding rates steady and suggesting they would be ‘patient’ with future rate hikes. Chairman Powell went even further in his post-meeting press conference, stating that the current level of interest rates is within the range of neutral policy. That’s a stark contrast to just 3 months ago when Powell declared rates were ‘a long way from neutral’. Post-announcement the US rate curve steepened while credit rallied. Friday’s US jobs report surprised to the upside, and continues to allay fears that the economy is slowing. BMO became the second Canadian bank to issue “bail-in” bonds in the US market, printing a 5y note at +92. The deal was met with a decent buyer base from both US and Canadian investors and traded a few basis points tighter on the break.
Canadian credit continues to perform as strong earnings and a lack of primary supply pushed secondary paper tighter. Spreads tightened 5-7 basis points for the week led by Financials and REITs. Utility company Bruce Power was a notable underperformer as recent issuance from comparable Algonquin Power placed significant selling pressure on the name. Wells Fargo surprised investors on Friday with the first Maple deal of the year, printing $1bn of a 5yr note at +132. The deal priced relatively cheap to US WFC notes and rallied tighter in secondary trading.
Global credit continued to grind tighter last week, buoyed by news on Friday that Congressional leaders reached a temporary agreement to reopen the US government. Credit curves steepened with 10y bonds trading 5 basis points tighter while 3-5y bonds traded up to 15 bp tighter. Investors have been buying secondary paper as new issue supply has underwhelmed expectations, and dealers have seen inventories significantly reduced. JPMorgan led the way on the new issue front last week, with a $2 billion 8-year bond deal that priced at the tight end of expectations but still ended the week 7 bp tighter.
Canadian credit followed the theme with investors reaching for paper and dealers scrambling to cover shorts. Credit spreads were generally 5-10 basis points tighter across all sectors. Three new deals priced, with Algonquin Power earning deal-of-the-week status with a 300mm 10y green bond priced at a spread of +264. The deal generated significant demand from a multitude of clients and finished the week trading 18 bp tighter.
Global markets continued to march upwards as optimism on US-China relations and a solid start to the earnings season kept the momentum going. US credit rallied steadily throughout the week, fuelled by successful new issues, improving liquidity, and tenuous progress on US/Chinese trade relations. The primary market printed just over $25bn of paper this week with major banks like Citigroup, JPM, Wells Fargo and Morgan Stanley all launching deals after posting mixed Q4 earnings reports. Across the pond, UK Prime Minister May had a busy week, facing a Brexit vote defeat while surviving a “no confidence” vote the following day. UK banks rallied on the news as traders anticipated a delay of the March withdrawal deadline and increased possibility Brexit might not happen at all.
Canadian credit felt robust despite rising diplomatic tensions with China. Spreads generally tightened by 5 or more basis points, and the positive tone enabled patient issuers to launch some long-awaited deals. Ontario Power Generation printed a 30-year deal that came at a significant concession, ending the week 13 bp tighter as investors appear starved for long-term paper.