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.