Risk assets were mixed throughout the week as investors digested the ongoing stimulus talks, vaccine headlines and increasing COVID cases. US credit spreads managed to trade modestly tighter with financials outperforming following positive Q3 earnings reports. European markets traded slightly weaker as Boris Johnson’s self-imposed Brexit deadline passed without a deal; however, talks appear to continue behind the scenes. US Primary issuance was led by the second-biggest bank deal of all time; Friday’s 8.5 Billion multi-tranche deal from Bank of America ($BAC). Despite the formidable size, the deal traded well into the weekend.
Canadian credit underperformed global markets, but the general tone still feels positive. Corporate issuance slowed with three deals printing a combined 950mm CAD. Of note, Ontario Power issued 400mm CAD of a 5.5y note at G+83. The deal followed the latest string of successful utility issues.
Global risk assets rallied last week on expectations of a definitive US election result and increased hopes of a fiscal stimulus package. US credit spreads were 5-10 bp tighter with higher beta Financials and TMT outperforming. Despite Trump’s comments earlier in the week to seemingly cancel negotiations, the Republicans and Democrats have been working to prepare some sort of fiscal bill in the coming weeks, helping to buoy tone. Although COVID continues to provide headlines as new cases surge across the northern hemisphere, public opinion appears to be shifting toward riding out the pandemic until vaccines can be released early in the new year.
The Canadian credit market was about 5 bp tighter this week with Trudeau announcing further stimulus measures and Friday’s employment for September suggesting Canada continues to recover lost jobs at a good pace. Primary issuance surprised to the upside with over 3.5bn CAD printed across five issuers. Hydro One issued 1.2bn CAD across three tranches, while Scotiabank broke the drought in Canadian dollar senior bank debt, printing 1.25bn CAD of a 7y. Most deals this week found good support and finished 3-5 bp tighter.
A week full of headlines out of Washington saw risk assets move higher and global credit spreads move tighter to reverse the selloff from late September. Month-end rebalancing was a contributing factor in pushing equities higher and treasuries lower, which allowed credit spreads to end a difficult month with positive tone. Expectations of a stimulus agreement grew, while the first Presidential debate failed to give Trump a much-needed boost in the polls, increasing hopes that the election may provide a definitive rather than contested result. The September US jobs report released Friday came in weaker than expected, but was overshadowed by Trump’s positive COVID result. Despite the negative news, the increase in the chances of a stimulus bill prevailed, allowing credit spreads to finish the week about 5 basis points tighter.
Canadian credit underperformed global markets as lower crude prices and month-end flows put pressure on risk. Spreads widened by 2-3 basis points with energy underperforming over renewed concerns for crude demand. The Canadian primary market was busy with 1.5 billion printed across five issuers. An inaugural deal from consulting firm Stantec was the highlight, printing 300mm CAD of a 7 year bond which finished the week trading 6 bp tighter.
Last week credit spreads finally capitulated to ongoing weakness in stocks and other risk assets. The lack of a fiscal stimulus package continues to be the main driver, but rising COVID cases and uncertainty heading into the final month of the US election are contributing factors. Banks led the way lower following a report suggesting a number of major institutions had failed to stem nearly $2 Trillion of money laundering activity over the last 20 years. European equities and credit were also down after rising cases in the UK forced the country to partly shut down. Despite the general weakness, investment grade bond funds continue to show inflows, while equity and high yield funds reported record outflows. Surprisingly, Treasury yields barely moved on the week, trading within a tight range.
Canadian credit spreads were generally 3-5 bp wider and continue to outperform US spreads. New issuance slowed significantly this week with just three deals printed, including an inaugural issuance for Hydro One Ltd, the holding company of Hydro One. The deal printed 425mm CAD at a spread of +102 and finished the week trading just inside.
Credit markets outperformed equities last week as the Fed failed to ease market jitters amid a lack of US fiscal stimulus and concerns over a COVID second wave. Although Fed Chair Powell attempted to set a dovish tone at the FOMC press conference, the lack of any concrete policy changes disappointed traders, instigating a sell-off in equities while the Treasury curve steepened slightly. But credit spreads still managed to finish modestly tighter alongside another busy week in primary issuance. The IG market saw $44bn of new paper come to market across 45 deals. This week’s tally brings the month of September to $119bn, just under market expectations for the full month.
The Canadian credit market was constructive with secondary spreads about 2 bp tighter while new issues were in focus. The primary market had one the busiest weeks of late, with 3.275bn CAD printed across ten issuers. The real estate sector was the highlight with new issues from Morguard Corp, Artis REIT, Sienna Senior Living and an inaugural issue from Summit Industrial Income REIT totalling 850mmm CAD in total. The new issues were generally well-received and repriced secondary curves tighter.
Global credit spreads managed to remain close to unchanged last week, which was impressive given a heavy issuance calendar and negative tone in equities. The first week after Labour Day did not disappoint as primary issuance ramped up with busy sessions on both sides of the border. $62 billion of new investment-grade corporate bonds priced in four days in the primary market, easily surpassing initial estimates. Bonds continued to be well bid with the help of strong fund inflows as investors continue to switch out of equities.
Canadian credit finished the week similarly unchanged with financials and REITs outperforming while energy underperformed. The highlights of the week were the two latest Tier 1 capital notes (LRCNs) from BMO and CIBC. BMO issued $1.25bn at a 4.3% coupon, and CIBC brought $750MM at 4.375%. Both deals were well supported finished the week trading above par.
Risk assets proved to be mixed leading up to the Labour Day weekend with credit steady while equities fell and volatility spiked. Rumours of a “whale” in the US options markets (i.e. one market participant with a significant position) made traders nervous, though credit spreads remained subdued compared to other risk assets. It was finally a quiet week for new issues with just under $4bn printed in the US; however, the street is projecting approximately $50-60bn of investment-grade supply this week. After flattening for most of the week, interest yield curves reversed course on Friday with the 30-year note yield rising by 10 basis points after the August jobs report showed the US unemployment rate unexpectedly dropping below 9%.
Canadian credit posted a steady week with a strong showing on both secondary flow and issuance. Credit finished the week either side of unchanged with mostly selling in deposit notes and buying in REITs. The primary market saw three issuers print a total of 1.35bn CAD for the week. National Bank (NACN) surprised the market with the second bank to issue their inaugural Tier 1 hybrid note, or LRCN. NACN launched 500mm CAD with a 4.3% coupon. With a BB+ rating at the US agencies, investor appetite was limited, and the deal finished the week trading below issue price.
Credit had a relatively quiet week with spreads close to unchanged amidst a rising interest rate curve and positive tone in equities. On Thursday, Fed Chair Powell spoke (virtually) at the annual Jackson Hole symposium, where he unveiled a new policy framework including “average inflation targeting.” He suggested the Fed could allow inflation to rise well beyond 2% before hiking rates. As a result of the new measures, the US rate curve steepened with the yield differential between 2-year and 30-year Treasuries rising by over 20 bp. With all eyes on Jackson Hole, it was a quiet week for US investment grade bond issuance. The only notable deal came from Royal Pharma PLC with a $6bn multi-tranche deal that finished the week up to 20 bp tighter. Investor flows for Investment Grade funds remain constructive even as investors become more cautious, with a reported $6bn of inflows last week even as High Yield funds saw $1.4bn of outflows.
Canadian credit markets had that late-August feel, with spreads unchanged on low trading volumes. We continue to see off-the-run and short-end paper outperform even as credit indices lag. Canadian banks reported solid quarterly earnings but were in no rush to issue new debt. The Preferred Share market in Canada got an unexpected bounce when Royal Bank called a number of outstanding series early. First Capital REIT and Brookfield Infrastructure Finance both came to market with new bonds deals that went very well, and repriced secondary spreads tighter.
Global credit markets had a subdued week as stronger equity markets were offset by ongoing heavy new issue supply. US credit spreads finished anywhere from 2 basis points tighter to 10 basis points wider, with technology and financials underperforming. Investment Grade borrowers continue to take advantage of low rates and tight spreads, adding over $35 billion in new bond issues for the week and breaking a primary issuance record for the month of August at over $120bn. Treasuries reversed the prior week selloff to finish lower on yield, with the 10-year yield falling over 8 bp to 0.62%. Investment grade fund flows continue to be strong, with $5.13bn of inflows for the week, making it the 19th consecutive week investors added to their holdings. High yield funds saw outflows for the first time in seven weeks.
Canadian credit spreads were close to unchanged overall with bank spreads modestly wider as REIT paper outperformed. The highlight of the week was a $150mm 5-year issue from mortgage financier MCAP. Investors found the 335 spread highly attractive, and the deal was 20 basis points tighter in early trading. Existing MCAP paper finished the week up to 40 bp tighter.
Global credit finished the week close to unchanged as the US underperformed most markets amid heavy supply and disappointment over a new stimulus bill. Treasuries took the spotlight with 10-year yields rising 15 basis points and rate curves steepening following 10 and 30-year bond auctions. In just 8 months, US corporate bonds have surpassed $1.35 trillion of new issue supply, beating the annual record set in 2017. The heavier-than-expected new issue activity in August is weighing on sentiment despite ongoing healthy inflows to corporate funds and ETFs.
By contrast, Canadian credit spreads were tighter on the week with senior bank spreads holding steady while less liquid sectors like REITs, Energy and Autos outperformed. Canadian sovereign yields rose in lockstep with the US, making all-in yields for Corporate bonds look attractive, and the relative lack of supply allows for a much more technically positive outlook. Brookfield Renewable Partners was a notable issuer last week, pricing a 30-year green bond at a spread of +225. The deal performed well despite offering little concession to existing paper, and essentially dragged secondary spreads tighter by 5-10 basis points.
Global risk assets were off to a hot start in August thanks to better-than-expected corporate earnings reports along with hope for a new US stimulus bill. US credit spreads tightened by 5 basis points with technology and financials outperforming. Mutual Fund flow reports for July showed net inflows again for both IG and HY funds, underpinning the deep bid for credit. Primary supply for the week totalled over $35bn, coming in as expected by investors. The July jobs report released on Friday closed out the week on a positive note with both US and Canada payrolls increasing more than forecast. The jobs report was also enough to stem the downward trend in Treasury yields, which finished the week modestly higher.
Canadian credit continues to feel technically very well bid, backed by both a more robust economic recovery (at current pace Canada looks set to regain peak employment roughly three months faster than the US) and a lack of meaningful new issue supply. Most sectors traded 2-3 bp tighter though certain names, particularly in the REIT sector, were up to 15bp better. We saw well-received new deals from Loblaw’s credit card program Eagle Trust – the first credit card bond of the year in Canada, and from Husky Energy with its first C$ bond issue since 2017.
Global credit spreads drifted modestly wider in the final week of July, capping what has been another very strong month for the asset class. In the US, the Pharmaceutical sector outperformed while industrials and energy underperformed. New issuance was steady with just under $7bn of primary supply across nine deals. The highlight of the week was a jumbo long-maturity deal from AT&T accompanied by a tender for most of their bonds maturing before 2025. The deal was well received and finished the week about 10 bp tighter. Issuance is expected to pick up as we enter August with around $75bn of supply coming in the first two weeks post-earnings blackout.
Canadian credit outperformed last week as earnings beats from the likes of Molson Coors and UPS snapped select credits tighter by up to 40 bp. The highlight of the week was a new issue from Reliance LP, printing 430mm of a 7.5y at G+230. The deal was very well received and finished the week 13 bp tighter while tightening the issuer’s outstanding secondary debt as well.
Global credit outperformed equities this week as relatively stable earnings, new global stimulus, and light primary supply provided a technical bid for corporate bonds. US credit finished the week about 5 bp tighter while higher beta industrials were outperforming. Lipper reported $7.75bn of inflows into investment grade bonds, making the 15th straight week of inflows. High yield bonds also saw $3.91bn of inflows, the largest inflows of the last six weeks. Just $6bn of bonds were issued in the primary market, the quietest week since Christmas 2019. The highlight was the dual tranche deal from Bank of America, the sole financial issuer to print new bonds post quarterly results.
Canadian credit continued its summer grind tighter with the highlight being RBC’s much anticipated inaugural CAD Alternative Tier 1 (AT1) bond, which acts as a replacement for Preferred Share capital in the bank’s capital structure. RBC printed CAD 1.75bn of a 60-year bonds with an initial coupon of 4.5%, resettable and callable every 5 years and backed by RBC Preferred Shares. The deal was highly successful, attracting a broad range of buyers and enabling the bond to trade up by over $1.5 in secondary trading. Similar NVCC and other financials also tightened by 10 bp in lockstep. We expect the success of this deal will undoubtedly attract other issuers to issue similar AT1 bonds.
It was a relatively quiet but positive week for global credit markets last week. Equities appear to be range-bound, with the S&P index so far unable to break above the recent highs from June 8th. Rising COVID cases in the US and localized outbreaks around the world are holding us back, while stimulus expectations and encouraging progress on vaccines keep markets propped up, with the two sides in seeming equilibrium. The good news is that a lower volatility environment is a good one for credit, and we saw a slow grind tighter throughout the week. Spreads were aided by a lack of new issue supply and generally positive earnings reports from US banks.
Here in Canada, the news cycle was dominated by RBC announcing their intention to issue Tier 1 capital in the form of a 60y C$ bond issue callable every 5 years and backed by preferred shares issued by the bank. The innovative structure is targeted at institutional investors and, if successful, could have significant consequences for the Canadian preferred market. The deal is expected to price this week with pricing potentially suggested in the 5y Canada’s + 425-450bp area. We like the structure conceptually and will be looking to get involved depending on ultimate pricing.
Credit spreads finished the week fairly flat as investors remain wary of consistently increasing COVID cases in the U.S. and other parts of the world, even as equities appeared to shrug off pandemic fears by Friday. U.S. credit was unchanged on average with a tilt towards credit curve steepening. Meanwhile, Treasury yields fell with the curve flattening, suggesting we may have seen a near term top to four straight months of curve steepening. Investment Grade issuance finished under 20bn for the week, fairly typical for this time of year and another sign that the COVID related issuance surge has now passed. Next week’s primary issuance volume is expected to be similar with all eyes on the starting of earning season, including notable results from Pepsi, JPMorgan, Wells Fargo and Goldman.
In our domestic market, credit held in well with Canadian spreads finishing the week unchanged to 5 bp tighter. Markets were supported by light new issue supply and a strong rebound in Canadian employment for June. In contrast to the U.S., the interest rate curve steepened after the federal government announced an expected 2020 deficit of 340 billion, which it said would be funded mostly with long-dated bonds. There were a couple of deals of note in the Canadian market with National Bank issuing CAD 750mm of a 6-year senior bond with a 5-year call date. The bond generated substantial demand due to its rare structure and finished the week three bp tighter.
US credit rebounded strongly in a holiday-shortened week as investors were willing to shrug off rising case counts in the southern states to focus on supportive central bank policies and a stronger than expected June jobs report. Investment grade spreads in the US tightened by 15-20 bp for the week amid light trading volumes and slower issuance. US fund flow data suggest IG funds saw healthy inflows last week ending while High Yield saw its largest outflow since February 2018, and the underperformance in High Yield spreads was notable. Finally, US employment data for June surprised to the upside for the second straight month with job rising by 4.8mm against an expected 3.2mm. The jobs posting boosted risk assets, and Treasury yields rose heading into the weekend.
The Canadian session was interrupted by the mid-week Canada Day holiday, and with the US off Friday, it never really got going again. Spreads tightened by a more modest 3-5 bp, and we expect some catchup to US spread performance this week. The Bank of Canada’s corporate bond purchase program was mostly on the sidelines as dealers were unwilling to hit bids as the market rallied.
Risk assets took a step back this week as a surge in COVID-19 cases across select US states cast doubt on the path of the recovery. Southern states, including Texas, Florida and Arizona, were particularly in focus with spikes in positive testing that led the US to new highs for daily case growth. As a result of the increase in cases, Florida and Texas announced plans on pausing their reopening, sparking concerns that the US opened too quickly. US credit widened by about 10 bp this week, with autos underperforming (+25). New issue activity slowed down considerably ahead of the holiday-shortened week, finishing around $25bn. New issue concessions rose slightly with moderate performance of most deals. The deal of the week was an inaugural bond sale from business software company Intuit. The $2bn multi-tranche deal generated significant demand with a strong A- rating, finishing the week 4-5 bp tighter.
Canadian credit finished the week broadly unchanged as COVID cases remain under control in Canada. This week saw $2.4bn of primary supply, with the bulk of the issuance coming from RBC’s $1.25Bn sub-debt issue. Also of note was Gibson Energy’s first bond financing since being upgraded to investment grade. The deal was well oversubscribed and finished the week 10 bp tighter.
Credit markets bounced back nicely this week even as COVID cases continue to rise globally and in certain US states. Reports of progress in US-China trade talk helped turn equity sentiment positive, however the bigger news in credit was the Fed announcing on Monday it would start buying individual corporate bonds the next day. While purchases are expected to be modest so long as credit markets remain stable, the presence of the Fed acts as a backstop and should allow credit to continue to grind tighter. US markets finished the week about 15-20 bp tighter. On the primary side, over $58bn of bonds were printed this week, finishing slightly above expectations. On average new bonds finished the week only 2bp tighter as in many cases deals are getting launched with zero or even negative price concessions. New bonds from Pfizer spinoff Upjohn were a notable outperformer, finishing the week up to 20bp tighter.
Canadian credit tightened by an average of 10 bp with Autos and REITs outperforming. Primary issuance was on the lighter side this week with $930mm of bonds printed including issuers like OMERS and Empire Life. Given the generally positive tone it was no surprise that corporate bond purchases by the Bank of Canada were sharply down, with under 10mm purchased for the week.
Risk assets retraced much June’s gains this week as COVID-19 concerns rose, outweighing a dovish Fed and progress on the reopening economy. US cash credit spreads were 25-30 bp wider while treasury yield curves flattened. The major market mover was the fear of a “second wave” stemming from spiking cases in states like Florida, Texas, and the Carolinas. The Fed provided a dovish tone during its latest FOMC meeting, stating that they likely won’t be raising rates for a couple of years. Ultimately investors decided to focus instead on the Fed’s downbeat tone on the economy to discount the prior week’s surprisingly positive US employment report.
Canadian Credit weathered the volatility, widening by 3-5 bp with a tilt toward a credit curve steepener. CAD 2.9bn of primary issuance was printed across four issuers, including AltaGas, H&R REIT, BMO and Saputo. Of note, H&R REIT ($HRUCN) brought its first trade since January 2018, issuing CAD 400mm of a 5yr at G+365. The deal was well received and finished the week issue bid while other new issues were 3-10 bp wider.
Global risk sentiment turned meaningfully positive last week as US and European re-openings continue to take hold. The surprisingly strong jobs data in the US and Canada announced Friday capped off the week nicely and drove credit spreads tighter while rate curves steepened. Midweek the ECB renewed its commitment to support bond markets, adding an additional EU600bn of buying capacity and extending the program to June 2021. The combination of positive news enabled US credit to tighten by 30-50 basis points led by some of the more cyclical sectors that had been struggling to perform.
Canadian credit followed suit to the US, tightening by 20bp on average and as much as 50bp in some sectors. Both RBC and BNS took advantage of the recent US tightening to bring US dollar deals midweek at substantially tighter spreads than Canada, highlighting how the Canadian dollar spreads had lagged. This allowed Canadian spreads to push tighter, and we expect further catchup this week. The Bank of Canada continues to pick away at corporate bonds, adding 36mm of paper in the second week of its purchase programme. On the primary front, CAD 1.1bn was priced in REIT deals from Granite REIT and SmartCentres REIT ($SRUUCN). Both deals proved largely successful and finished the week anywhere from 10-30 bp tighter.
Risk assets pushed higher despite a backdrop of rising civil unrest and US-China tensions. The S&P capped off a solid month with a weekly rally of over 3% while U.S. credit tightened by 8-10bp – higher-beta spreads as much as 30bp. For now, investors are content to ignore downside risks and focus on the relatively successful re-opening of the broad U.S. economy amid the broad array of fiscal and monetary support. A lighter week for bond issuance following the Memorial Day holiday also provided a technical tailwind for credit.
Canadian credit spreads mostly tracked the U.S. tighter with energy and auto spreads outperforming. The Bank of Canada commenced its corporate bond purchase program, however with spreads already rallying volumes were light. Central banks appear content that markets are acting reasonably orderly and therefore don’t need to be aggressive in their buying; we expect they would buy more paper should sentiment turned negative. Two billion new C$ corporate bonds priced last week, concentrated in the energy sector with Pembina, Interpipe and Keyera, all bringing successful deals. Eighteen billion of new issuance in the month means April and May are the two busiest months on record for Canadian corporate supply.
Global risk assets rebounded nicely this week as investors grew increasingly comfortable with the re-opening of the global economy while COVID-19 infection rates were generally consistent. US credit finished the week 30-40 bp tighter, helped by a lighter new issue calendar and the continuation of the Fed buying program. The Fed disclosed on Thursday that it had purchased approximately 250mm of corporate bond ETFs per day and now own approximately $1.8bn. The pace of new issue supply in the US slowed, which provided a positive technical backdrop and allowed spreads to tighten. 62bn in new supply was priced in the US last week, down considerably from the 95bn average of the prior three weeks. We saw pricing concessions drop, and after-market performance was mixed, though most were onside by the end of the week.
Canadian credit lagged the US but still gained some ground. We saw significant performance from the Energy sector as oil prices held above $30, and Maple bonds began to look cheap vs US counterparts. The main news from Canada came on Monday when the Bank of Canada published its methodology for purchasing corporate bonds. Canada saw five new corporate bonds price for a total of 3.8bn, including Desjardins, which printed it’s inaugural NVCC sub-debt deal. Other issues came from NAV Canada, Telus, Teranet and CI Financial. The Bank of Canada begins to buy corporate bonds on Tuesday, which should contribute to the positive technical tone for the coming week. The US holiday on Monday will make for quieter markets and reduced volumes.
US credit shrugged off poor performance from global equities last week to finish modestly higher. The catalysts included the start of the Fed’s corporate bond-buying program, buying interest from overseas investors, and slowing new issue supply. With the US Memorial Day holiday approaching, issuance is expected to slow down further, which could provide a further tailwind for US credit this week.
Canadian credit could not hold under the heavy issuance load combined with a generally weak tone. Credit spreads finished the week as much as 25 bp wider as $7bn of issuance was too much for investors to handle. After a slow restart relative to the US, primary issuance in Canada has been robust in May and looks set to continue as Canadian borrowers shore up their balance sheets. Bell’s 1.5billion of 10y and 30y bonds finished the week 10-15 bp wider despite offering investors a 3-5bp concession to secondary spreads.
While Canada enjoyed the Victoria Day long weekend, global risk assets rallied Monday on news of successful Vaccine testing and Fed Chair Powell’s comments to 60 minutes regarding “unlimited” support for the US economy. US credit traded up to 15bp tighter as stocks rallied, and we expect better performance in Canada if the US rally holds.
Despite stronger global equity markets last week, US credit spreads widened moderately as new issue supply continues to run at a record pace. An environment of low-cost debt combined with uncertain earnings outlook continues to attract high-quality issuers for refinancing. As of Friday, US dollar new issue volumes year-to-date are running 95% ahead of last year’s pace. We expect the current frenzy to slow in the second half of May and likely into the summer months, though we should remain above 2019 volumes. In rates, the US Treasury Department announced a new 20y note with a larger-than-expected auction size of $20B to take place on May 20th, and increased existing auction sizes across tenors to finance COVID relief spending. This announcement caused the US yield curve to steepen with the 2-year to 30-year spread rising 16 basis points to 122bp.
Despite weakness in the US, Canadian credit managed to tighten by 5bp. Energy & mining sectors led the way as the recovery in commodity prices continues, with issuers such a Suncor and Cameco as much as 25 bp tighter. Autos caught a bid after better than expected earnings from General Motors. The primary market started to accelerate with over CAD 6.2bn of supply across eight issuers. Enbridge Inc ($ENBCN) was the deal of the week, printing CAD 550mm of 5y and 7y bonds following earnings. The deal was heavily oversubscribed and finished the week about 8 bp tighter.
April drew to a close and appeared to take the recovery momentum in risk assets with it as markets started May on a downbeat note. The broad US credit index still finished the week modestly better, but spreads were off the tights. Financials outperformed (-10) as investors gravitated towards liquidity and strong balance sheets, while industrials (+3) and consumer discretionary (+5) underperformed. Another record month of US dollar primary issuance was capped off by a staggering $25 billion debt deal for Boeing. Despite seemingly attractive launch spreads of 450 basis points, markets struggled to absorb the size, with the 7 to 40-year tranches struggling while the 3-5 year held. The relative performance of the tranches is a sign that the reach for duration in credit may be over for now, which could allow credit curves to steepen.
Canadian corporate markets remained better bid last week, allowing April spread performance to regain ground on foreign markets. The week saw $2 billion of primary supply across three deals; RBC, Loblaws and Cominar REIT. The Loblaw 10-year bond earned top performer status, finishing the week 7 basis points tighter than launch. Cominar was the first REIT to issue post COVID-19 in the primary market, printing CAD 150mm of 5yr notes at 5.95%. The deal priced with minimal concession and attracted only a limited number of buyers, but still demonstrated that REIT names can access funding through the current crisis.
Global markets managed to finish the week either side of unchanged despite volatile swings in commodity prices and COVID-19 headlines. WTI prices fell below 0$/bbl early in the week for the first time in history due to global supply/demand imbalances. On the other hand, signs of slowing COVID-19 cases combined with the reopening of select states provided some hope to investors. US credit spreads finished modestly wider as primary and secondary trading slowed. The primary market was dominated by financial issuance post-earnings with Bank of America, Morgan Stanley and Wells Fargo, all bringing multi-billion-dollar deals. Financial spreads leaked slightly wider, heading into the weekend as investors felt a little supply indigestion. The VIX volatility index finished the week near 36; it’s lowest level since March 5th, which is an encouraging sign for credit.
Canadian credit tightened slightly for the week with auto and energy names underperforming, widening by 30 bp and 20 bp, respectively. This week saw CAD 2.1bn of issuance from three deals. Of note, Shaw Communications (SJRCN) issued CAD 500mm of a 10y note at G+225. The deal was well received, generated 77 buyers and was 7x oversubscribed.
Credit markets continued in recovery mode last week based on an improving outlook for COVID-19 and expansion of central bank stimulus. Equity and credit traders appear willing to shrug off rising unemployment and falling oil prices as merely temporary. US banks reported first-quarter earnings with roughly half missing estimates. Last weekend’s historic OPEC+ agreement to cut production was not enough to stop oil trading below $20/barrel on Friday. Storage of oil already out of the ground is weighing heavily on spot prices, even as forward oil prices project oil will rise back above $30/bbl by year-end. US credit spreads tightened by 20bp on average last week, though the tone was deteriorating somewhat by Thursday/Friday. The primary market printed a respectable $50bn worth of paper with Ford Motor, a notable issuer of $8 billion, including a 5-year tranche priced with a 9% coupon. Attention this week will be on US states announcing their re-opening timeline, and we anticipate some volatility with protesters demanding a more rapid return to normality.
Credit headlines were dominated by the Bank of Canada announcing it would purchase up to CAD 10bn of investment-grade corporate bonds. Spreads tightened by up to 40 bp on the week with autos, infrastructure and utilities outperforming. REITs also rallied after Trudeau announced that the government would be introducing commercial rental subsidies. Canadian issuers took advantage of the solid tone, printing a total of CAD 6.3bn across four deals. Of note, Toyota printed its largest Canadian offering yet, issuing CAD 1bn of a 4.5y note at G+190. The deal was well supported with over 65 investors and CAD 5bn of demand.
Credit markets finished the holiday-shortened week on much firmer footing as the spread of COVID appeared to ease across the globe, and the US Federal Reserve took further action to support corporate bond markets. US dollar credit spreads tightened by up to 100 bp, and curves began to normalize. On Thursday, the Fed gave further detail on it’s previously announced corporate bond purchase program; focusing on investment grade bonds maturing under five years, and including so-called “fallen angel” bonds. This encompasses issuers that were investment grade prior to March 22nd but subsequently downgraded, including high profile names such as Ford and Macy’s, and alleviates ratings migration risk which had become a source of anxiety for credit buyers. The primary market tapped a total of $37bn, down considerably from the week prior due to the Easter holiday. Pricing concessions diminished this week but deals still averaged about 7x oversubscribed and traded about 5-10 bp tighter from issue spread.
Despite the lack of any direct intervention by the Bank of Canada, Canadian credit still managed to catch a bid on Thursday as valuations compared favourably to the US. Credit spreads tightened by about 25 bp with financials outperforming. Primary issuance was relatively subdued with only two issuers to speak of. One of the higher-quality issuers from the energy sector, Cenovus Energy, braved the primary market, printing 1 billion CAD of a 10-year maturity with a generous spread of +419. The deal performed well on the back of an oil production cut from OPEC+ countries.
Risk markets carefully waded through headlines this week as the COVID-19 infections surpassed 1 million. Investors gauged the long-term impact of the US economy as the White House warned of potentially over 200,000 deaths. How quickly the US does or doesn’t move toward that benchmark will dictate US markets in the near future. Despite the stark headlines and equity markets finishing the week lower, credit spreads were mixed with financials generally 15 bp tighter while industrials were +/- 10 bp. Energy credits improved as oil prices jumped on talk of a negotiated worldwide cut to production. Once again, the US primary market was bustling, setting a record for new corporate bond issuance for the second week in a row. Concessions remain attractive, and investors took down the supply with relative ease as new issues outperformed secondary paper.
Canadian credit tightened slightly with the help of the rise in oil prices and generally calmer markets. The Canadian primary market was also making history, pricing a record weekly issuance total of CAD 5.2bn across eight issuers. Most of this issuance was placed in covered bonds. Of note, TransCanada Pipelines tested investors’ appetite for Canadian energy, printing CAD2bn of a 7-year at G+325. The significant concession caught the attention of a diverse array of buyers and enabled the deal to finish 10 bp tighter by the week’s end
Considerable monetary and fiscal stimulus across the globe appeared to improve risk sentiment last week even as the number of COVID-19 cases doubled on a worldwide basis and tripled in the US. The Fed introduced unprecedented new measures including “unlimited” buying of treasuries and purchasing corporate bonds in both the primary and secondary markets. Credit markets lagged the considerable equity rally but US spreads still finished the week anywhere from 50-200 bp tighter with financials and industrials outperforming. Credit curves remain inverted however, and it may take a few more days or even weeks for things to normalize. In the mean time borrowers took advantage of the improved tone to pump out $110bn of new issue product in USD – the largest weekly total on record. Concessions were unusually elevated, and represented the best opportunity to make money in an otherwise strained market.
Canadian credit markets lagged the US and struggled to find their footing despite the solid equity gains. Investors were still cautious to buy the dip while anticipated quarter-end rebalancing is just around the corner. Multiple downgrades in the auto and energy sectors also weighed on sentiment. Primary issuance remains generally quiet, although Rogers Communications and Disney both tested the waters with successful 7-year deals. Canadian banks were actively issuing covered bonds in foreign markets last week, printing upwards of CAD 25bn.
Credit markets descended into a near liquidity crisis last week as COVID-19 continues to spread across the globe. Risk reduction efforts were everywhere, causing even short-dated corporate bonds to selloff sharply. With the VIX index of market volatility reaching a near historic high above 80 (all-time high during the financial crisis was 89), US credit markets widened by 100-300 basis points. Fears were exacerbated by a price war between Saudi Arabia and Russia, which sent oil prices tumbling towards $20/bbl. Despite the poor conditions, the US primary market still managed one of its busiest weeks of all time, with $61 billion of new debt pricing. Despite offering generous concessions, most deals still struggled to perform and only contributed to secondary market spread widening.
The Canadian credit market fared slightly better, though liquidity was equally challenging. Energy and auto names underperformed. Just $1.85bn of primary supply printed across three brave issuers. Bank of America, Intact and Bell each offered around 30-40 bp of price concession, but found limited buyers and pushed credit spreads wider in the process.
Global central banks were busy with both fiscal and monetary initiatives in an effort to fight the lasting economic effects of the virus. Aggressive rate cuts were seen in many jurisdictions, including both the Bank of Canada and the US Federal Reserve. Bond purchase programmes were also announced, and we expect these to be accelerated in the days and weeks to come.
The goal in this type of market is to focus on corporate names that could be under specific stress. We still expect most bonds in our portfolio to mature at par so that mark-to-market losses can be recouped. Logically the liquidity crisis will be temporary, but there will be losers among corporate issuers. If we can avoid the losers, then ultimately, the current dislocation will provide plenty of profitable trading opportunities.
Risk assets experienced extreme market volatility this week as increasing fears of COVID-19 were met with an oil price war between Saudi Arabia and Russia. US credit spreads generally widened by 65 bp with energy names significantly underperforming. Liquidity was increasingly scarce, with even treasury yields hitting a floor as investors sold all assets to hide out in cash. Seven issuers tapped the primary market during select positive rebounds this week, printing a total of $7bn. Of note, Starbucks printed $1.75bn across three tranches at a significant concession. Unfortunately, sellers came in as tone soured, enabling deals to finish offside for the week.
Canadian credit widened significantly, given the large exposure to the energy sector, generally finishing the week 60 bp wider. Surprisingly, the Canadian 5-year government of Canada bond yield ended the volatile session essentially unchanged as liquidity dried up. The Canadian primary market squeezed out two bank deals, printing a total of $3.5bn of bail-inable debt.
Given the recent developments this week, global central banks have been actively cutting interest rates and pumping liquidity into the markets to ensure continuity through these interesting times. Just as recently as Sunday, the Fed announced a further surprise cut of 100 bp, lowering the Fed funds rate virtually to zero while committing $500bn of Treasury debt purchases and $200bn in mortgage-backed debt purchases. Markets will take this week to digest these extreme moves and hopefully calm the waters.
Risk assets took another leg lower this week as fears of the spreading impact of COVID-19 made for some volatile global markets. The Fed’s emergency 50 bp rate cut did little to provide confidence to investors; instead, it signalled a sell-off in equities and a significant bid for sovereign bonds. US credit ended the week 25-30 bp wider with energy and financial sectors underperforming. The 30y Treasury yield fell by 40 bp along with a curve flattener as investors reassessed the coronavirus’ anticipated impact on global growth.
Despite the choppy markets, the primary market opened back up with $30bn pricing across 28 issuers. Most of the deals priced on Tuesday and Wednesday had healthy subscriptions, higher concessions and decent two-way flow on the break. Unfortunately, the sour tone late in the week took hold, and most issues finished slightly wider.
Canadian credit relatively outperformed, finishing the week about 15 bp wider. The Bank of Canada followed in the Fed’s footsteps with its own 50 bp cut on Wednesday, sending government yields materially lower. Given the lower all-in yields, $1.35bn of new issuance was priced this week, the bulk being long bonds. 407 International printed $700mm of a 30y despite the choppy markets with decent book demand. The deal finished the week 8 bp wider with the most of the widening occurring on Friday.
It goes without saying last week was one of the most volatile weeks for risk assets since the financial crisis almost 12 years ago. Coronavirus headlines took hold as investors focused on an increasing rate of infection outside China, even as the total number of global known active cases declined. The S&P 500 finished the week down around 11% while the Barclays global credit index dropped by 1.7%. Investment Grade credit spreads widened by 20 bp with travel and energy sectors performing the worst and the pharmaceutical sector performing the best. The US primary market was completely shut down due to the volatility of risk assets, creating a backlog of primary issuance for March.
Both US and Canadian sovereign yields dropped materially as markets anticipated economic slowdown and rate cuts. The US 10-year yield reached a new all-time low at 1.15% while the Canadian 10-year yield fell by 20 basis points to flirt with 2016 lows near 1%. The market is currently pricing in a 25 bp rate cut for Canada this Wednesday, and two rate cuts for the US when the Fed meets later in the month.
Canadian credit proved less volatile than foreign markets so far. Credit finished the week 10-15 bp wider with some significant curve steepening as investors shed risk assets in the long end. One sole issuer braved the choppy markets with Hydro One ($HYDONE) printing CAD 1.1bn across three tranches. The deal steepened after the break with most investors preferring the shorter 5-year tranche.
Global risk markets finished the holiday-shortened week on an uneasy note as renewed fears of the coronavirus took hold combined with softer global economic data. US credit finished about 5 bp wider with industrials and energy underperforming. Apart from the shaky macroeconomic tone, the primary market saw the busiest President’s Day week on record with $37bn of supply. The onslaught of issuance was also a detractor for credit spreads as investors struggled to digest supply. On the rates side, the 10y US Treasury yield fell by 11 bp while Bund yields hit year-to-date lows as a result of the flight to safety.
Canadian credit was relatively unfazed by global developments, ending the week essentially unchanged as managers continue to buy in response to ongoing flows into bond funds. The primary market was active following a slew of corporate earnings with $2.2bn of supply printing across four issuers. Of note, Choice Properties REIT ($CHPUCN) launched a dual-tranche deal, printing a total of CAD 500mm. Both 10y and 30y tranches of the CHPUCN deal were well oversubscribed despite the relatively low all-in yields. Both deals finished the week a couple bp tighter.
Equities reached all-time highs this week while credit tightened slightly as solid earnings outweighed continued uncertainty around the coronavirus and softer economic results out of Europe. US credit finished the week unchanged to 2 bp tighter with Real Estate and Consumer Discretionary outperforming while Energy and Financials lagged. Kraft Heinz was downgraded to junk after announcing their deleveraging plan was running behind schedule, affecting 28 billion of debt. European credit was mixed as industrial production in the Euro area fell in December, driven by weakness in the core countries of Germany, France, Italy, and Spain. US Treasuries remained rangebound as investors await post-coronavirus economic data.
Canadian credit traded either side of unchanged this week as borrowers took advantage of low yields and tight spreads to launch new deals in the long end. $2.6 billion of new corporate bonds printed in Canada this week, and half of it had a maturity of 30 years or greater. Algonquin Power subsidiary Liberty Utilities was a new name to the market, launching a 200mm 30y bond at a spread of +185. The deal was heavily oversubscribed and finished the week 5 bp tighter.
Global credit markets bounced back strongly from January weakness as positive economic data and optimism regarding a coronavirus vaccine enabled investors to re-price risk assets higher. US credit tightened by 5-10 bp this week while treasury yields reversed course, rising by 7 bp. The US employment report on Friday exceeded expectations; however, profit-taking stemmed any follow-through rally, suggesting traders have lingering concerns over coronavirus heading into the weekend. US corporate bond issuance remains well ahead of last year’s pace and we anticipate another busy week as issuers take advantage of liquid markets and tight spreads ahead of next week’s holiday-shortened session.
Canadian credit markets were strong, but with a more muted reaction, given spreads remain close to year-to-date tights. Investors digested CAD 3 billion of supply, including Allied Properties REIT ($APUCN), which launched its largest issue and longest tenor to date. The 400mm 10y bond was heavily oversubscribed and finished the week 4 bp tighter than launch spread.
The month of January ended with a risk-off tone as Coronavirus headlines continued to dominate markets. US stocks and high yield markets gave up all their year-to-date gains, while investment grade credit spreads finished the week 8-10 basis points wider. Energy credits underperformed as oil prices fell toward 12-month lows. New issue markets were understandably subdued as investors continue to digest high volumes from the beginning of the year. US Treasuries rallied significantly, and 10y Treasury yields finished 11bp lower near 1.50%. Despite the difficult tone, the US Federal Reserve left the benchmark rate unchanged at their latest meeting but opened the door for a rate cut later in 2020. Overseas the UK was officially, if somewhat symbolically, removed from the European Union with little disruption. Difficult negotiations are still to come; however, with more volatility expected as the year progresses.
Canadian credit followed international markets lower, but trading remained relatively orderly and spreads finished a modest 3-5bp wider. Despite the widespread volatility, new issue markets remained open, and three issuers were able to bring bonds. Scotiabank issued a CAD bail-in while Morgan Stanley brought a 3-year FRN Maple. AutoCanada was a rare high yield issuer that printed CAD 125mm of a 5-year note at a yield of 9%. The pricing proved too attractive for yield-starved investors with the bonds trading up an impressive $3 on the first day of trading.
A positive week for credit gradually faded as fears of Coronavirus global contagion began to take hold. All headlines centred around cases emerging outside China, while Chinese authorities attempted to contain the virus by restricting travel and placing certain cities under quarantine. Most of the market impact occurred Thursday and Friday, with US credit spreads widening 3-5 bp while Treasury yields fell by 10 bp. In Europe, the European Central Bank made no changes to interest rate policy and announced a strategic review of its mandate, the results of which are expected later in the year.
Canadian credit outperformed other asset classes, widening by an average of 2 bp for the week as a result of the global virus fears. Domestic markets were buoyed somewhat by a dovish Bank of Canada announcement on Wednesday, leaving rates unchanged but suggesting a cut may be warranted later in the year. The news caught government bond traders by surprise, pushing yields sharply lower and the Canada-US 10-year spread to a year-to-date wide at -30bp. Despite the cautious tone, RBC managed to raise $2.25 billion with the launch of a new 7-year bond.
Pandemic headlines have accelerated over the weekend, and we begin this week with a decidedly risk-off tone. Primary issuance is expected to be on the slow side with the closing of Asian markets for the Lunar New Year while the FOMC and BOE will provide updates this week.
Global credit markets continued to grind tighter last week amid solid bank earnings, signing of the “Phase One” deal between US and China, and fading geo-political tensions. New corporate bond supply continues to be strong with $34 billion printing in the US market last week; down from the $60bn of week one but still nearly 30% ahead of the 2019 pace on a year-to-date basis. Credit spreads tightened by 3-8 basis points as flows continue to pour into bond funds. On the rates side, the US Treasury announced that it would start issuing 20-year bonds which allowed the Treasury curve to steepen even as rates continue to be generally range-bound.
Canadian credit continues its strong start to the year, tightening by 3-10 bp and generally outperforming other geographic regions. This week saw the domestic primary market kick into life with 2.5 billion of new corporate bond supply across five issuers. In the bank sector, BMO printed CAD 1.5bn of a 5-year bail-in bond, a welcome reprieve in financial issuance as most banks continue to fund most of their needs in foreign currencies. The deal was well oversubscribed and finished the week 5 basis points tighter.
This week will be a slow start with the US market closed for Martin Luther King Day on Monday. Both the Bank of Canada and European Central Bank will make rate policy announcements mid-week, however we anticipate both will leave rates on hold.
The first full week of 2020 proved both busy and constructive for global credit markets. Despite heightened geopolitical tension in the middle east, corporate new issues were fast out of the gate with over $60 billion printed across 40 issuers in what proved to be the second-largest week of US dollar supply on record. The issuance was dominated by European and Asian financial sector borrowers, including names like Standard Chartered, BNP and Westpac. Of note, Japanese bank Nomura brought their inaugural Yankee deal with much fanfare, printing $3 billion across 5 and 10-year tranches. The 10-year tranche tightened by up to 11 basis points in early trading as significant buyers all corners of the world stepped in. Despite the substantial supply, US spreads still managed to finish 3-5bp tighter, as the market easily absorbed the supply. Government bonds in Europe continue to unwind from negative rates with yields at a six-month high, while Treasury yields remain in the middle of the 1.70-1.95% range which has prevailed since early October.
New bond issuance was significantly more muted here in Canada as just two deals came to market. Both priced right in line with secondaries but still managed to trade well as investors scrambled to add credit duration. Overall Canadian credits shrugged off middle-east tensions to finish the week 2-3 basis tighter.