Risk markets started off the week on the back foot thanks to investor anxiety over the increasing global COVID-19 Delta variant count. Thankfully, record-breaking earnings reports outweighed any near-term worries, allowing risk to again reach new highs while the Volatility Index (VIX) fell from a high of 25 on Monday to 17 by Friday. In the U.S., 120 of the S&P 500 companies have reported with 88% of earnings ahead of estimates and 84% of revenues ahead of estimates. Investment Grade credit spreads widened 4-7 basis points (bps) early in the week but recovered most of that by Friday to finish the week either side of unchanged. Primary issuance came in less than forecast due to the soft tone early in the week. Treasury yields fell as low as 1.16% during the Monday selloff before settling into a 1.25%-1.30% range.
Canadian investment grade credit performed similarly to its U.S. and European counterparts, finishing the week +3/-1 bps. Sectors like Deposit Notes outperformed while Telcos and Energy underperformed. Credit curves also steeped as long-term tenors widened the most. New issuance was quiet with TD’s inaugural Limited Recourse Capital Notes (LRCN) being the sole Canadian transaction of the week. TD printed CAD 1.75 billion (bn) of a 3.6% 80NC5 LRCN which priced with a slight concession and attracted 60 buyers.
Global equities and credit markets fell last week amid rising cases of COVID-19 in the US and Europe and further strong inflation data. US credit spreads widened for a second straight week, finishing +2-5 basis points on average. Major US banks underperformed the week following heavy primary issuance, moderate earnings reports, and a flattening yield curve. Goldman Sachs, Morgan Stanley and Bank of America were all active with new debt issuance. Treasury yields continued their march lower despite inflationary signals including strong CPI and retail sales prints, as investors continue to deduce the Fed will be forced to act on inflation sooner rather than later.
Canadian IG credit showed its resilience once again and finished the week unchanged to -1 bp tighter thanks to outperformance from Autos and REITs. Domestic primary issuance was hot with $4.7 billion of new bonds printed, skewed heavily towards financials with deals from BMO, CIBC and BNS. Of note, Summit Industrial Income REIT ($SMUUCN) helped drive REIT spreads tighter by issuing 225mm CAD of a 7y note at G+132. The deal grew interest from multiple investors groups, finishing over 6.3x oversubscribed. By the end of the week, the new deal performed by 4 bp and pulled secondary spreads up to 3 bp tighter.
A quiet week for credit markets despite another strong rally for US equities. North American markets had one eye on the July long weekend, and trading activity was generally subdued but constructive. US banks passed the latest round of the Dodd-Frank Act Stress Test with flying colours and quickly began to announce dividend increases. The US payroll report released on Friday suggests job recovery continues at a moderate pace, but not so quickly to derail monetary or fiscal stimulus. US credit ended the week mixed with Chemicals and TMT underperforming while Financials and REITs led the rally.
Canadian credit outperformed global markets with spreads 1 bp to 2 bp tighter. A welcome slowdown in new issue supply allowed investors to focus on existing bonds, with picking away in Financial and Energy paper ahead of the Thursday holiday. The sole issuer to tap the primary market was North West Redwater with a large $2.6bn multi-tranche transaction. Pricing looked attractive the deal was well received, pushing secondary spreads 3-5bp tighter in the process.
Global risk assets set new highs last week as investors shrugged off a hawkish Fed and focused on Biden’s bipartisan Infrastructure bill. The US 10-year Treasury yield experienced ongoing volatility in the wake of Fed chairman Powell expressing inflation concerns to finish about 8 bp higher at 1.53%. US Investment Grade credit spreads remained firm while US equities broke through record highs thanks to inflows in both equity and credit funds. IG primary issuance was as expected with over $20bn printed across multiple small-size deals. Of note, Enbridge launched their first Sustainability-Linked bond with much fanfare and finished a couple better than new issue spread.
Canadian IG credit continues to marginally underperform due to heavy new issue supply and despite continued optimism over economic re-opening across the country. High yield outperformed on the back of a rally in commodities like WTI, copper and nickel. Investment Grade investors were busy digesting new deals with approximately $3.3bn CAD of supply in the Canadian market, including an inaugural Sustainability-Linked deal from TELUS and a long-awaited LRCN from Sun Life Financial. Total primary issuance has now surpassed C$16 billion in June, making it the busiest month of the year so far. Most deals this week were well received, and we expect once the supply wave passes Canadian spreads have room to catch up through the summer.
The US Federal Reserve grabbed all the headlines last week as they signaled rate hikes may come sooner and more frequently than expected. Investors were caught off guard by the slightly hawkish tone from the Fed, with chair Jerome Powell acknowledging inflation may be higher and more persistent over the next couple of years. Meanwhile the latest survey of Fed governors suggested the potential for two rate hikes in 2023, a marked change from the March survey which barely suggested one. The Treasury curve flattened as 2-year yields rose 10 basis points while the 30y yield fell as much as 20bp. Equities finished the week lower, while US credit spreads managed to finish 2-3bp tighter. Fund flows continue to reflect a flight to quality as investment grade bonds received $4 billion of inflows while high yield funds reported outflows for the seventh consecutive week.
Here in Canada credit spreads were relatively calm, while rate and equity markets proved volatile in the wake of the Fed. Robust issuance has proved to be a slight headwind, with Canada modestly underperforming the US. The star performer of the week came from the Secure Energy’s inaugural HY deal. Secure printed 200mm CAD of a 5.5y with an attractive coupon of 7.5%, allowing multiple investors to reach for yield and bid up the price to $101 by week-end.
Inflation was once again in the spotlight last week, with US CPI for May exceeding expectations for the third month in a row. The Consumer Price survey has now risen 5.0% over the last 12 months, the highest annual print since August 2008. Despite the news, Treasury yields fell to their lowest level since early March due to a combination of short-covering and Pension rebalancing. Credit spreads were close to unchanged as retail inflows were offset by new issue supply. Investment grade funds continue to enjoy retail support with the largest weekly net purchases since early May at just over 3.2 billion. In contrast, high yield funds experienced outflows for the sixth week in a row. European credit spreads outperformed as investors finally re-entered the market as interest rates appear to have stabilized.
Canadian credit marginally underperformed global markets due to heavy supply, as over C$6 billion of new investment grade bonds printed in the last week. Scotiabank launched their inaugural LRCN hybrid note with a 3.7% coupon, while Dream Industrial REIT printed $800mm. The Dream deal included a “green” tranche which attracted plenty of buyers and reflects the trend toward ESG-friendly paper.
The first week of June saw global credit off to a mixed start against a backdrop of choppy risk markets. A solid $20 billion of new corporate bonds priced in US dollars despite the holiday shortened week. The US jobs report on Friday disappointed for the second month in a row, however investors chose to look on the bright side; focusing on the fact that slow jobs growth means Fed stimulus will likely remain intact for longer. Equities finished near the recent highs and Treasury traded to the lower end of the 1.55-1.65% yield range which has held since late April.
Investment Grade spreads in Canada ended 1-2 bp tighter thanks in part to month-end buying due to rebalancing. Banks were the outperformers with focus on NVCC (subordinated debt) in the 7-10y part of the curve. New issuance picked up with five deals pricing just over $4 billion CAD. RBC brought its third LRCN in the past year, while Parkland Fuel and Videotron both launched deals in the High Yield space. Parkland’s 600mm CAD 5-year deal priced at 3.875% and generated plenty of investor interest despite the sub-4% coupon as investors continue to reach for yield.
Global risk markets finished May with a strong if somewhat subdued tone. Major US equity and high yield indices managed to edge into positive territory for the month, while investment grade spreads continued to grind toward new multi-year tights. Yankees outperformed, finishing up to 4 bp tighter while Energy and Industrials lagged. Primary issuance was modest, led by a $5 billion deal for AstraZeneca. Most of the action came early in the week with many US participants taking advantage of a long weekend, spring weather, and easing restrictions around gathering and travel. US Treasuries remain range-bound in the 1.60% area with economic indicators offering few surprises. Euro-denominated credit continues to lag as zero or negative-yielding debt lacks international demand.
Bank earnings were in focus here at home with the “Big Six” generally reporting strong second quarter results as the Canadian economy emerges from COVID. Primary issuance was on the lighter side with two deals to speak of from Bell Canada ($BCECN) and Bank of Montreal ($BMO). Following the release of their ESG framework in April and marketing last week, Bell Canada launched its inaugural sustainable bond with much fanfare; a 500mm 7-year deal priced about 3-4 bp tighter than non-ESG Bell debt. Demand was robust and the deal finished 4 bp tighter in secondary trading.
Investment Grade credit markets remained resilient in the face of equity market and cryptocurrency volatility last week. Minutes from the April Fed meeting suggested inflation and tapering were hot topics of discussion, however soft economic data released later in the week appeared to allay investor fears. Despite the sharp moves in other markets, US credit spreads finished the week either side of unchanged thanks to a generally underwhelming primary supply calendar. Interest rates remain range-bound with the US 10y yield continuing to hover near 1.60%.
Canadian credit spreads were firm with better buying across most sectors. REITS and Maples were -2 bp while Insurance was 3 bp wider. 2.8bn CAD of primary issuance was printed across five issuers. The deal of the week went to Sienna Senior Living ($SIACN), printing 125mm CAD of a 6-year deal at +171bp over Canadas. Reports that the order book was up to 10x oversubscribed allowed the deal to trade 15bp better and repriced other bonds in the sector tighter. A holiday-shortened week in Canada this week followed by a US holiday on the 31st should make for quieter markets to close out the month.
Rising inflation fears took center stage last week, but risk assets mostly managed to take it in stride. US CPI numbers released Wednesday shocked markets with the highest monthly gain since 1981. This sent stocks tumbling and government yields higher, but a concerted effort by Fed governors to downplay the inflation spike as “transitory” appeared to have the desired effect. Credit endured a volatile session mid-week but a strong rally on Thursday and Friday enabled spreads to finish the week mostly unchanged. New issue supply markets were active, led by a jumbo deal from Amazon. The company printed $18.5bn across multiple tranches which ranks as the second largest deal of the year behind Verizon’s $25bn offering in March. US Treasuries absorbed the threat of inflation without any major hiccups and the US 10y finished the week 4 bp higher at 1.62% while the curve steepened.
Canadian credit spread Index finished 1 bp wider during a busy session. Long Pipelines and Midstream generally lagged on the week and are closing 2-3 bps wider while Insurance and REITs outperformed, finishing 2 bp tighter. Rates underperformed the US with the 10-year Canada yield rising 6bp. A handful of new issues were in focus highlighted by deals from Enbridge and Intact. Intact Financial proved to be the star performer with 1 billion of new bonds which found plenty of demand and ended the week 4 bp tighter.
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.