US credit led the way in a generally upbeat week for risk markets. A surprisingly soft US jobs report released on Friday suggests fiscal and monetary policies will need to do more to get people back to work. That means more gas on the flames of risk assets. Equities jumped higher while treasuries struggled to hold meaningful gains. Once again inflation concerns from investors appear to be preventing treasuries from rallying. Energy names led the way for US credit spreads after reporting strong quarterly earnings. For the most part new issues priced aggressively leaving little room for performance.
Energy names were the highlight of the week in Canadian credit markets as well, tightening by over 5 basis points on good earnings from heavyweights like CNQ, IPL, TOUR and ARK among others. Away from Energy, investment grade spreads were largely unchanged on the week. There were two deals of note in the auto sector from Hyundai Motors and Paccar Financial. The Hyundai deal in particular was highly-anticipated and attracted an impressive number of buyers. Both deals saw good follow-on buying in secondary trading and finished the week up to 5 basis points tighter.
Risk assets consolidated last week to cap a strong month for equities but only a moderate month for credit and fixed income. It was a busy week for US corporate earnings with most companies reporting strong numbers, although it seems the good news was already priced into the market. US credit spreads finished the week modestly tighter with bank paper outperforming. The Fed’s latest meeting was decidedly dovish as Chair Powell left the pace of bond purchases unchanged and denied any hints of tapering in the near future – a stark contrast to the more hawkish sentiment from the Bank of Canada a week earlier. The US 10-year yield rose by 8 bp despite the dovish tone as investors looked to inflationary pressures from commodities and economic data prints. May is expected to be a busy month for issuance with $150 billion of new bonds anticipated.
Canadian credit was mostly unchanged with Energy spreads outperforming thanks to blowout earnings. Primary issuance was on the lighter side with three high yield deals from Superior Plus, CanWel and Laurentian Bank. Superior Plus and the Laurentian Bank LRCN deal both did well, attracting plenty of buyers and trading up over 1%. The search for yield continues.
Risk assets pared April gains last week, with both equities and credit finishing just off the month-to-date highs. Economic re-opening news out of the US continues to look strong, though investors focused mainly on reports that President Biden may increase capital gains tax in the next budget. Credit spreads were mixed, with the US index finishing a 1-2 bp wider for the week. Bank spreads recovered from last week’s underperformance to finish 5-10 bp tighter, while Industrials and Consumer Staples both widened by 3-5 bp. The 10-year Treasury yield fell to 1.56% as it continues to consolidate following a sharp selloff in the first quarter.
Canadian credit spreads were close to unchanged last week as investors focused on the Bank of Canada’s decision on monetary policy. Governor Macklem surprised investors with a more hawkish tone and guided for tapering to occur earlier than anticipated. 2 & 3-year Canada bonds underperformed on the news, and rate curves flattened. New corporate bond issuance continued at a moderate pace with 2.75bn CAD of deals printed across a handful of issuers. Of note, Corus Entertainment ($CJRCN) came to market with its inaugural HY bond offering, printing 500mm CAD of a 7-year at 5%. The deal was heavily oversubscribed and finished the week a full point higher.
US credit spreads finished marginally wider last week despite strong equity markets, with US banks being the main underperformer on heavy supply. After releasing upbeat earnings for the first quarter, Goldman, JP Morgan and Bank of America combined for $34 billion of new bonds in just two days. The deals were priced to move, offering up to 15bp of concession and sending secondary spreads wider in the process. Once the dust settles, we see these wider bank spreads as a buying opportunity. In rates, Treasuries staged a sharp short-covering rally to send 10-year yields lower by 8bp to 1.58%.
Here in Canada, credit traded mostly sideways; outperforming global markets but with Maple spreads under some pressure from US bank issuance. New issue markets were active with new deals from National Bank, CIBC, and Canadian Western Bank. The deal of the week was an inaugural offering from project management consultant WSP Global (BBB+), which printed a 500mm 7y deal at +117. Investors clamoured to participate in the new name, and the deal finished the week 8 bp tighter.
Global credit held firm last week as macroeconomic optimism offset concerns over corporate tax hikes. US investment grade spreads hovered near recent tights as most sectors finished +4 to -1 bp for the week. TMT and Industrials underperformed following their massive rally last month. Interest rates stabilized after the Fed minutes maintained their dovish tilt and emphasized the economic recovery was not yet complete, downplaying concerns of impending inflation even as PPI numbers released on Friday suggested otherwise. Primary issuance was underwhelming, with just $16bn of new corporate bonds announced. Most deals came with little concession, and after-market performance was somewhat lacklustre.
Canadian credit outperformed with spreads tighter by as much as 5 basis points. Autos, REITs and Utilities all outperformed thanks to successful new issues, which caused secondary spreads to narrow. In contrast to the U.S., it was a busy week as eight new deals were launched, totalling $3.5 billion. Foreign issuers continue to find Canadian financing attractive, with Heathrow, Athene and New York Life all bringing deals to market. The deal of the week came from Summit Industrial REIT, a 250mm 6-year “green” bond which priced at +118 over Canadas and traded as much as 6 basis points tighter on the break.
Equity markets reached new highs and credit markets caught a strong bid following the announcement of Biden’s new $2.25 trillion infrastructure spending plan, and the US employment report for March exceeded expectations. Strong monthly inflows from equities into bonds also created a technical tailwind. The continuation of strong economic data helped US credit spreads tighten by 5-15 bp in short order, led by Industrials and TMT. The March jobs report released on Friday showed a constructive improvement in Leisure and Hospitality sectors. Treasuries traded within a tight range as the 10y yield rose by 4 bp to finish at 1.72%. New issues slowed considerably with much of the world on a holiday-shortened week, and April volumes are expected to be more moderate following a busy March.
Canadian credit spreads tightened 3-4 basis points with Financials and REITs outperforming. Similar to the US, monthly flows were positive for credit spreads with both mutual funds and active mandates adding bond exposure. The Canadian debt markets saw modest issuance this week, with only two transactions pricing which represents the lowest weekly tally since January. The government of Canada 5-year bond yield was 3 bp higher to finish at 96 bp.
A mixed week for global credit as banks pushed tighter while energy and tech sectors widened. Banks finished the week on a positive note after the Fed lifted emergency restrictions on dividends and share buybacks imposed last June. While the move benefits shareholders more than bondholders, credit markets were nevertheless comforted that the central bank regards balance sheets and economic conditions as strong enough to withstand dividend increases. $40bn of new corporate bonds priced with most deals enjoying a healthy 5-10bp concession. Quarter-end rebalancing should be supportive for credit markets this week as institutions rotate from equities to bonds.
Canadian credit was about 1-5 bp tighter for the week led by Consumer Discretionary and Financials. The primary market slowed down considerably, with 650mm CAD priced across two transactions. A late Friday deal from Intact Financial showcased the latest LRCN 60NC5 issue with a 4.125% coupon. The small deal was heavily oversubscribed and finished the day up to 40 bp tighter.
Global risk assets were generally on the back foot last week after the US Federal Reserve continued to indicate comfort with higher interest rates. In their latest review of policy released on Wednesday, the FOMC noted the current Zero interest rate policy would remain for the foreseeable future, even as they forecast inflation to remain at or above 2% through the end of 2023. Markets responded by selling Treasuries with the 10-year yield rising by 10 basis points to 1.75%. US IG credit reaction was mixed, with TMT and Financials outperforming. Primary issuance came in as expected with $30 billion printed. AT&T brought an unexpected Friday deal, printing $6bn of solely front-end notes which left long-end buyers scrambling for secondary paper.
Canadian IG credit underperformed as supply indigestion, and M&A in the Telco sector spooked investors. Credit spreads widened by an average of 4 bp with Telco and Energy spreads underperforming. Over 3.5bn CAD of primary issuance printed this week, totalling the third-highest first-quarter issuance on record. Two major themes continued to play out as Sagen and Canadian Western Bank added to the recently “hot” LRCN market, while Bank of America and Morgan Stanley became the latest foreign issuers to tap the C$ market. Most of the deals struggled to perform out of the gates due to poor market tone and lack of pricing concession.
It was another mixed week for credit amidst another difficult week for duration bonds. Credit spreads were pulled between two competing forces, with equities reacting positively to the $1.9T US stimulus package signed by President Biden, while Treasuries traded lower as the yield curve continued to steepen. US IG credit overall finished about 2 basis points wider, but saw a wide range with spreads anywhere from +5 to -8. Issuance continues to be heavy to start the year, as borrowers rush to get ahead of rising interest rates. Telecom giant Verizon led the way with a $25bn deal that was well received by investors and allowed Telecom spreads to finish the week on the front foot. In Europe, the latest ECB meeting was supportive for credit, announcing they would increase the pace of bond purchases in an effort to keep rates rising too far too fast.
Canadian credit spreads ranged from -2 bp to +8 bp with Insurance performing while Telco spreads widened the most on the back of supply. Canadian government bonds continue to be of focus as yields tried to rally early in the week but spiked 15 bp higher on Friday following a stellar jobs report. Domestic primary corporate issuance continued on the heavier side with $4.7bn of bonds printed. The Energy sector led the way with a total of $1.5bn in supply from Parkland, Keyera and Altagas.
The ongoing sell-off in government debt spilled over to credit markets last week as spreads widened the most in 12 months. Although a strong US employment report on Friday allowed major equity markets to finish stronger, volatility has increased, and the technology sector, in particular, looks vulnerable. US investment grade spreads widened by 5-10 bp, with Financials and Pharma widening the most. Energy remains a bright spot, with spreads mostly unchanged or even tighter on the week. New issue supply is contributing to a technical headwind for credit, with over $65 billion of paper issued last week, making it the busiest week of the year so far.
Canadian credit started to feel investor’s angst as spreads generally widened by 5-8 bp. Primary corporate issuance in Canada was also very robust, with a total of seven issuers printing over 5bn CAD of bonds. Of note, Suncor printed a $500mm 30-year deal with a spread of +255. The bonds finished the week 2 bp better than launch while other new issues are 2-5 bp wider.
Interest rates grabbed the spotlight this week as government bonds in the US and Canada exhibited some of the highest volatility seen in years. At one point, the US 10-year yield traded as high as 1.61%, up 27bp from the previous Friday close. That was enough to spook credit and equity investors, pushing the S&P index down over 2% and credit spreads 5-10bp wider. Technology spreads were among the hardest hit, particularly as the move higher in funding costs coincided with the release of the latest round of 5G spectrum auction results for the Telecom industry. Verizon will require up to $45 billion of new debt to cover its auction spend, with AT&T not far behind.
Yield volatility was also prevalent in Canadian governments as the 5-year bond yield priced in a full rate hike in one week, rising by 23 bp. Credit spreads finished 5-8 bp wider, led by high-beta Financials and REITs. Despite the volatility, corporates remained active in issuing new debt, including Manulife and Goldman Sachs deals. Fairfax Financial came to the domestic market for the first time in two years, printing 850mm of a 10y at a spread of +262. The deal was printed with a healthy concession, allowing to immediately price 6 bp tighter before giving up some performance along with the weak macro tone toward the end of the week.
Global credit outperformed other risk assets as investors grappled with steepening yield curves and commodity price volatility. US Investment Grade Credit spreads tightened by 2-8 bp, with the broad spread index reaching its tightest level in over 12 months while equities were down slightly. Power outages amidst freezing temperatures sent local natural gas prices to extreme levels in Texas, while Treasury yields spiked higher as fiscal stimulus talks progressed. 10y US Treasury yields rose to 13bp to 1.34%, a level last seen in February 2020 which means we’ve effectively unwound all of the March COVID panic rally, which took yields as low as 0.54%.
Canadian credit finished a couple of bps better thanks to a solid round of earnings and rising government yields. Two-thirds of Canadian companies reporting so far have beat street consensus, with sectors such as Utilities, Cyclicals and Industrials all posting strong results. The REIT sector re-repriced 5-20 bp tighter thanks to strong earnings and successful new bond issues. Despite a holiday-shortened week, the primary market was busy printing 1.8bn CAD of bonds across four deals. Cineplex was the latest inaugural issuer in the Canadian credit space with an unrated 5NC2 issue. The beleaguered movie chain issued 250mm at 7.5% with much fanfare and ended 2.5 points higher by the weeks’ end.
Stocks finished the week at all-time highs while interest rates continue to rise thanks to earnings strength, a dovish tone from the US Fed, and rising global vaccination rates. Fed Chair Powell spoke on Wednesday, reiterating the Fed’s “patiently accommodative monetary policy” and the need to return to full employment before considering any rate hikes. US credit spreads finished close to unchanged, with technology and pharmaceutical sectors underperforming while foreign banks outperformed. 30-year Treasury yields finished above 2% for the first time in 12 months as investors continue to voice concerns over rising inflation. Corporate bond supply underwhelmed, totalling just $19bn last week compared to expectations of $30bn, marking the slowest week of IG supply for 2021.
In Canada, all eyes were on the hybrid note market as not one but two insurers brought new LRCN bond issues to replace existing preferred shares. The deals from Empire Life and Manulife were both hugely successful and enabled the whole LRCN sector to re-price higher. Energy spreads were modestly wider after S&P downgraded Canadian Natural Resources by 1-notch to BBB-.
February is off to a hot start for risk assets as concerns over GameStop-related market volatility faded and US fiscal stimulus, corporate earnings, and optimism over economic re-opening took center stage. US credit spreads tightened 5-10 bp on the week, with international investors buying corporate debt after a 10bp rise in 10-year treasury yields made US dollar bonds look attractive relative to other major currencies. Supportive bond inflows into both Investment Grade and High Yield enabled markets to easily absorb a strong week for primary supply, with over $50 billion in new paper printed. Strong earnings from a number of sectors aided fundamentals, including Ford Motor Company, which posted a surprise profit for the 4th quarter and improved outlook for 2021.
Canadian credit kept pace with global markets, tightening by 5-10 bp with REITS and Industrials outperforming. Four new deals priced during the week and all were well-received by the market. Of note, Allied REIT brought a 5y deal following supportive earnings and traded up to 6 bp tighter despite offering little premium to existing secondary paper.
A modest selloff for credit markets in the final week of January left Investment Grade spread returns positive to start the year in what was otherwise a difficult month for both risk assets and government bonds. Credit remained relatively insulated from the short-squeeze related volatility seen in equity markets as US spreads widened 2-3bp on average with Energy names underperforming while Financials generally held firm. Investment Grade fund data reported a 12th straight week of inflows as investors continue to seek safe-havens, while High Yield funds saw their fourth consecutive week of outflows. US dollar corporate issuance remains moderate with $25 billion priced last week, led by 7-Eleven’s $11 billion inaugural debt deal to fund its acquisition of Speedway gas stations.
Canadian credit gave back some of its recent outperformance last week but still finished with solid returns for the month. Energy credits widened the most after S&P placed much of the sector on negative outlook citing the Biden administration’s firmer stance on climate change. In a quiet week for new issues, Central 1 Credit Union was the only C$ deal of note, printing a 250mm 5y at a spread of +90.
A mixed week for global credit as investors digested President Biden’s first round of new policies while concerns over the new COVID variant and pace of vaccinations dented sentiment. After taking office, Biden immediately followed through on an election promise by formally cancelling the Keystone XL pipeline, cementing his credentials as a president focused on tackling climate change. Oil and Gas names in the US were among the hardest hit and contributed to a modest 2-3bp widening in US credit overall. US banks led the new issue market in what was a modest week tempered by Monday’s US holiday and Wednesday’s presidential inauguration. Overall we saw $25 billion of new US dollar bonds price, and a similar number is forecast for this week.
Canadian credit continued its strong performance, finishing 2-10 bp tighter with REITs and Energy outperforming while Telcos languished. The primary market was busy with six deals printing a total of 3.75bn CAD, made up primarily of Financials. Of note, the credit market welcomed another new entrant from Tourmaline Oil Corp. ($TOUCN). Their inaugural deal came in the form of 250mm CAD of a 7-year at a spread of G+148. The deal was heavily oversubscribed and finished the week 7 bp tighter.
Credit markets outperformed equities this week as investors looked past regional COVID spikes and instead focused on vaccine optimism and Biden’s $1.9 trillion stimulus package. The US credit Index finished 2 bp tighter with large dispersion in sector performance. Energy credits fared the best, tightening by over 10 bp while banks and industrials were unchanged to 5 bp wider. Primary issuance was relatively light, finishing at $25bn or about half of last week’s total. Expect another relatively light week for issuance due to a US holiday Monday, earnings blackouts and the Presidential Inauguration on Wednesday.
Canadian credit finally came to life with a handful of deals in the primary market while secondary spreads pushed tighter. Top performing sectors for the week included Insurance, Telcos and Energy, all tightening by 5-10 bp while the general Index was 2 bp tighter. $2.8 billion of new CAD corporate bonds came to market, including deals from Pembina, General Motors, BMW and CIBC. The year’s first deals were well received, pricing with little concession and finishing multiple times oversubscribed.
Happy New Year! Global credit markets picked up in 2021 where they left off: with tighter spreads and positive momentum. This despite a number of headlines that looked to potentially de-rail the positive sentiment; UK leading a number of countries into lockdown amid spiking COVID cases, Democrats gaining control of the Senate to foster fears of “business unfriendly” policies, US 10 year yields rising 20bp to finish above 1% for the first time since March, Wednesday’s storming of Capitol Hill by disgruntled Trump supporters, and all topped by Friday’s disappointing US unemployment numbers which showed the jobs recovery appears to have stalled. The persistent optimism in market pricing hinges on two assumptions, that vaccine rollout will allow economic activity to recover quickly and that central banks are prepared to do “whatever it takes” to ensure risk assets don’t collapse before then. The US priced over $50bn of new supply and most deals finished the week 5-10bp tighter than issue spread.
Canadian credit was also decidedly risk on while focusing on positive developments from the OPEC+ meeting and the curtailment of oil production for the first quarter of 2021. Energy credits rallied by over 10 bp in sympathy with the rise in oil prices. The lack of issuance also provided a technical tailwind for credit, allowing the rest of the general market to tighten by 5-8 bp.