New Issues started off strong in 2017 as companies, lead mostly by financial issuers, introduced approximately USD $50 billion of debt within the first couple days of the year. The surprise amount proved hard to digest considering USD $90 billion of new issues are expected this month.
The pace of activity picked up mid-week with heavy issuance on both sides of the border and positive earnings from American financials. While the macro market continues to deal with the implications of a new government in the US, credit spreads (ex-financials) continue to feel relatively strong.
Investors remained cautious ahead of the inauguration of a new US president, but also as events in Europe continued to swing sentiment. US credit continues to be hampered by the wall of supply (mostly financials) and languishing equity markets. Canadian credit continues to outperform with new issues well-subscribed and trading tighter.
Stable earnings, moderating supply, and the Dow reaching 20,000 were enough to send global credit markets tighter for the week. Despite the milestone in stocks, the outlook remains somewhat cautious as Trump’s early enactments maintain a distinctly protectionist and populist tone.
Despite generally flat risk markets, it was possible to make money in credit last week. Plenty of headlines including a Fairfax bond tender and General Motors upgrade provided opportunities.
A steady week for commodities and treasury yields saw global stocks reach new highs. France was in the spotlight last week as political headlines suggest a hotly contested presidential race this year.
The testimony by Fed Chair Yellen last week did not materially change expectations for credit markets as they continued to advance alongside global equities. The main cloud on the horizon (apart from Trump-related uncertainty) continues to be the French political situation.
Most sectors were tighter again this week amid continued solid demand, robust earnings, balanced trading flows, and a decreasing supply of new issues. Investment grade bond sales fell for the third consecutive week, slumping to the lowest weekly total of the year.
President Trump’s speech to congress on Tuesday was enough to drive credit spreads tighter this week as investors were encouraged by an upbeat and conciliatory tone. Later in the week attention turned to the Fed Funds rate, where a series of speeches and statements by Fed members actively promoted a March rate hike.
US credit was under moderate pressure this week as high yield indices are currently on their weakest run since last November. Lower oil prices and a heavy new issue calendar are cited as the primary drivers. Investment Grade markets were similarly lower though outperformed high yield overall.
Market sentiment shifted to a risk-on tone as the well-advertised Fed hike turned out to be more dovish than expected. The right pace of future hikes put the risk markets in a positive mood, which helped tighten credit spreads.
Markets struck a bearish tone throughout the week as issues related to the passing of the Republican health care bill created uncertainty over President Trump’s ability to deliver on his pro-growth campaign promises. Compared to the weakness in the equity markets, domestic credit was muted with weakness concentrated in the financial, auto and REIT sectors.
Credit markets finished off the strong quarter on a good note as credit spreads retraced the widening experienced last week. Notably, there was a strong secondary bid for BBB rated credits across the curve, solidifying the constructive tone in the bond market.
Credit spreads were broadly unchanged this week despite an unexpectedly poor U.S. jobs report and heightened geo-political tension in Syria. President Trump’s decision to quietly launch a missile attack on a Syrian air base Thursday prompted a flight to safety early Friday morning.
The holiday-shortened week contained plenty of market moving news as geo-political tensions continue to grow, pushing down global yields. The progressing threat of North Korea’s nuclear program prompted a flight to safer assets, with Canadian credit outperforming other regions.
Positive earnings from US banks weighed against heightened geopolitical tensions to produce a stalemate for global credit markets last week. Canadian credit continues to outperform as has been the theme all year. European credit news was dominated by the French elections – we saw short-covering late last week pushing spreads tighter.
Risk assets started off the week on a strong note as investors cheered the results of the first round of the French elections, which saw the moderate Macron go through to the second round along with right-wing candidate Le Pen. French bank spreads were significantly tighter as the market discounted the likelihood of a French referendum on Europe. Throughout the week, a mix of strong earnings and White House talk of a 15% corporate tax rate kept markets higher.
Risk assets finished off a volatile week in the black due to a Friday rally spurred by the resurgence in oil, decent US employment metrics, and confidence that centrist candidate, Emmanuel Macron, would defeat Marine Le Pen in the French presidential election over the weekend.
Canadian credit took a step back this week as the Moodys downgrade of Canadian banks shifted investors’ focus to the frailty of the Canadian macro environment. Additionally, investors have started to take note of companies slipping from Investment grade to high yield, specifically Sobeys ($EMPA) and Home Capital Group ($HCG).
Global credit markets experienced a wobble last week following ongoing revelations President Trump may have attempted to influence the FBI investigation into Russian collusion. After an multi-week period of relative calm, Wednesday saw enough of a risk selloff to prompt some analysts to suggest it was time to “sell in May” and spend the summer months on the sidelines.
Risk markets held a steadier tone last week with Trump’s Middle East trip providing some relief from ongoing White House revelations. While credit indices were generally flat, headlines continue to impact individual names and sectors both positively and negatively.
Despite the US withdrawal from the Paris Climate Accord and a surprisingly soft May employment report, global equity and credit markets managed to finish the week modestly positive. Canada continues to wade through a glut of May issuance and credit negative headlines from a number of institutions.
A surprise increase in employment mixed with a light week of domestic issuance contributed to an improved tone in Canadian credit last week, specifically in higher quality utility and infrastructure issuers. Credit was also better in the US as investors quickly moved past the testimony of FBI director, James Comey, to focus on expectations of a dovish hike from the FOMC next week.
Central Bank policy and inflation were in focus last week as the US Federal Reserve hiked rates for the third time since December. Here in Canada the tone was somewhat more upbeat. Bank of Canada Governor Poloz and Senior Deputy Wilkins delivered hawkish speeches confirming that the Bank of Canada has taken a more optimistic view of the economy.
Spreads of Canadian credit continued to tighten this week, driven by strong secondary trading in financials and banks on the back of preliminary bail-in rules released last Friday. American credit was subdued as a light week for economic data and downward revisions for inflation expectations placed a cooler on credit. The Dodd-Frank Act Stress Test (DFAST) results were largely in line, giving banks the likelihood to raise shareholder payouts.
Central Bankers in Europe, UK and Canada all expressed optimism about their respective economies, pushing government yields higher last week. Oil was higher, snapping a 5-week losing streak, but equity markets generally struggled dragged down by a selloff in technology stocks. Despite lower stock and bond markets, credit finished the month on a positive note with the Barclays Global Credit Index inching ahead to posit its best month of 2017.
The holiday-shortened week in Canada and the US made for very quiet credit markets to start the month of July. Interest rates dominated the conversation as the German 10-year bund reached its highest yield in 18 months and developed-market government bonds around the world sold off in sympathy. Here in Canada, a strong employment report on Friday has market participants convinced that the Bank of Canada looks set to raise rates this week for the first time in about seven years.
Central bank policies continued to dominate headlines on both sides of the border as Canada raised its key interest rate for the first time since 2010 and as Fed Chair Yellen provided dovish guidance during a testimony to Congress. Canadian government yields continued to rise as Governor Poloz provided hawkish comments following a rate increase of 25 bps. Global corporate credit tone continues to be receptive and modestly risk-on, further supported by a light amount of issuance in the primary market.
Following last week’s Bank of Canada rate announcement, Canadian corporate spreads tightened modestly across most sectors as investors took advantage of lower volatility, strong corporate earnings and quality new issuance. Government yields steadied throughout the week, falling slightly lower on Friday on the back of a mixed CPI report, reinforcing the Bank of Canada’s gradual path towards higher rates.
Global investors took advantage of strong credit tone and higher yielding instruments. Canadian credit performed well as solid earnings, an uptick in energy, and a string of good economic data gave investors confidence. Canadian government 10y yields rose above 2 percent for the first time since 2014 as investors continue to price in a second rate hike this year, capped off by the best year-over-year GDP metrics since 2000.
Strong Canadian earnings and a shortage of new issuance resulted in heavy secondary trading throughout the week, specifically in the telecom and financial sectors. Government yields were lower as Canada pulled back from the momentum of the last couple of weeks. American credit took a breather as a combination of specific earnings misses, disappointing auto sales data and political turmoil in the Trump camp caused spreads to widen.
A surprisingly heavy week of new issue supply against a backdrop of rising geopolitical tensions proved too much for global credit markets last week. US markets fared the worst, with the benchmark corporate spread index widening by 7bps – its worst 1-week performance in 18 months. Even as Canadians were enjoying an extended weekend on Monday, US bond markets kicked off the week with 13 new corporate issues, a surprising number for mid-August which set the tone for softer spreads.
Canadian credit was in focus this week with a C$2.5 billion inaugural maple deal for Apple grabbing investor attention. The launch on Tuesday ensured plenty of two-way trading throughout the week as investors made room for such a large new issue. Credit spreads in the US rebounded after the North Korean selloff of the prior week. Market tone remains lukewarm as investors weigh the Trump administration’s ability to follow through on its reform agenda. Benign inflation data and the release of Fed minutes pushed US rates down to a 2-month low.
Global credit spreads were mixed throughout the week as investors focused on corporate earnings and secondary trading while they waited for commentary out of Jackson Hole. Canadian corporate spreads were also mixed, driven by solid performance in Airports, Media and Utilities, while Retailers lagged. The primary market remains surprisingly active for August, with $1.6 Billion of Canadian corporate new issuance priced last week.
Trading volumes in credit were typically low for the last weekend of August. Primary issuance (finally) fell quiet, allowing credit markets to consolidate after a surprisingly busy summer. Hurricane Harvey and North Korea provided a macro-backdrop, with the forced evacuation in Houston affecting energy and insurance spreads. Primary supply is expected to return with a vengeance after Labour Day with plenty of deals reportedly in the pipeline.
The first week after Labour Day is typically one of the busiest of the year for credit markets and last week was no exception. The softer tone did not stop the flurry of new bond deals on both sides of the border, with $45 billion of supply in the US and over $3 billion in Canada. The rush of supply, tensions in North Korea and the potential damages from Hurricane Irma contributed to a broad widening of spreads in most sectors. New issue concessions remain tight and after-market spread performance for most deals was flat or wider.
American markets led the way this week with a risk-on tone as the potential impacts of Hurricane Irma appeared overstated and a deal between Trump and the Democrats to temporarily raise the debt ceiling put tax reforms back on the table. New issue activity remained brisk, with most deals finding strong investor demand. Over $38bn of US investment grade paper priced this week, surpassing the 25-30bn expected.
A subdued week in credit markets kept investors at bay as the US Fed rate decision on Wednesday dominated market attention. The Federal Reserve confirmed that after 9 years of open market bond purchases which saw its balance sheet inflate from under 1 Trillion to 4.5 Trillion dollars, it will begin reducing its balance sheet starting October 1, effectively withdrawing stimulus from the market.
Total Canadian corporate issuance for the third quarter finished above $30 billion for the first time ever! Meanwhile, Stephen Poloz caught currency traders off guard with a speech on Wednesday in which he suggested the Bank of Canada would proceed “cautiously” on any future rate hikes.
Amid sombre news of the tragedy in Las Vegas to start the week, trade volumes were muted but spreads kept grinding tighter. A notable new issue in the US this week came from BNS, launching its first AT1 deal: 1.25Bn with a 4.65% coupon. Anticipation of this deal caused domestic prefs and NVCC bonds to rally on expectations of reduced NVCC issuance in Canadian Dollars.
A holiday shortened week in North America saw spreads broadly unchanged with Europe rallying while the US market traded mildly softer. Despite US earnings season putting many large corporates in blackout, a number of notable new bond issues launched.
Credit investors managed to brush off macro issues including the NAFTA negotiations and the Catalan independence vote, focusing instead on the advancement of Trump’s legislative agenda to maintain spreads at or near the tights of the year.
The strong sentiment in global credit shifted over to Canadian markets this week, mixing with a dovish rate decision from the Bank of Canada on Wednesday. In the primary market, Toromont issued its long-awaited deal, printing 500mm 10-year paper priced at CRV+175 bps. The deal was very well received, closing 10 bps tighter for the week.
Canadian credit continues to defy gravity as bond spreads set new tights for the year. Energy paper led the way as oil prices closed at a two year high above $55. Across the pond, spreads of Italy’s largest banks including Intesa and Unicredit were up to 20bp tighter on the week after S&P upgraded the country by one notch to BBB-mid.
Global credit spreads took a step back from all time tights as investors struggled to digest headlines regarding the US tax plan amid large amounts of corporate supply. A 7 billion issue from Apple Inc. (AA+) on Monday got the week off on a sour note as a lack of concession saw the deal trade as much as 7bp wider in early trading. Investors were quick to demand greater pricing concessions on subsequent issues.
The selloff in US credit spreads has lingered in November on the back of outflows from High Yield funds. Weak industrial output and government crackdowns out of China set the tone on Monday, enabling the Bloomberg commodity index to decline the most in six months. However on Thursday Republicans passed their tax-overhaul bill in Congress and TMT spreads tightened over further M&A talk, enabling corporate bonds to finish the week significantly off the Wednesday lows.
Canadian credit markets roared to life early in the week before liquidity dried up due to American Thanksgiving. Secondary spreads were unchanged to a touch wider (in longs) as the market works to digest the recent slate of long bond issues.
US credit spreads continued to show an improved tone to regain some of the losses from earlier in the month. Most business was done during the first couple days, allowing some new issues to price.
The post-Thanksgiving Day week has traditionally been active for Canadian credit markets and this week was no exception, with bank earnings, a strong employment report, and over 7 billion in new corporate bond issuance. Consumer/Retail was one of the stronger performing sectors on the week after Metro Inc. ($MRUCN) successfully launched a three-tranche deal.
Global markets remained relatively flat throughout the week until a slew of positive headlines around the world contributed to a strong finish on Friday. The Canadian corporate market continues to be receptive in secondary trading as well as the new issue front. Canadian mortgage financer MCAP and transport company Penske were able to launch successful issues with small sizes, crowding in buyers with strong follow-on secondary trading.
As markets prepared to enter into holiday mode during the next couple weeks, a smattering of new issues, central bank meetings and strong secondary trading kept corporate bond investors busy throughout the week. The tone of Canadian credit was focused a handful of successful new issues including Reliance, Honda and SmartCentres REIT.
The tone of global corporate credit remained positive as the last days of business wound down before Christmas break. Enbridge, Inter Pipeline and Emera led the Canadian energy & utility sectors wider after rating agencies expressed reservations about the industries’ high debt loads and large capex programs.