Highlights from the week in Corporate Credit: Jan 7 – Jan 11, 2019
The first full trading week of 2019 saw global markets roar back to life. Fed Chairman Powell’s dovish comments combined with positive news on trade between US and China, which allowed oversold markets to bounce meaningfully off the December lows. US credit spreads were generally 5 – 15 basis points tighter to end the week as WTI moved back above $50/barrel and investors re-deployed capital to risk assets to start the year. The primary market in the US was robust with a total of 16 borrowers issuing over $40bn of new bonds. Anheuser-Busch InBev ($ABIBB) stole the show with a $15.5bn issue and announced a tender for existing bonds. Most deals were met with strong demand as issuers were willing to offer at significant concessions to secondary paper. As a result, some new issues repriced sector curves wider but most recovered within a few days. We anticipate another heavy week for issuance as banks report earnings and look to get their 2019 financing underway.
Canadian credit followed the risk-on tone with spreads tightening around 5 basis points. Canadian banks were actively issuing paper this week as CIBC came to market with Canada’s second ever bail-in note and Scotia followed with an NVCC (subordinated debt) issue. That the CIBC deal printed 45bp wider than a similar deal launched by RBC in September indicates just how far spreads moved in
Highlights from the week in Corporate Credit: Dec 31 – Jan 4, 2019
Global credit markets struggled out of the gate in 2019 as Apple revised guidance lower on Wednesday, citing a slowing Chinese economy. The news reinforced fears of a broader economic slowdown through global markets. Thursday also sent shockwaves through credit markets as the investment grade primary market saw its first activity of 2019 with six issuers printing a combined $10.1bn. Benchmark names like Ford, Toyota and BNP issued multi-tranche deals with significant concessions in the 30-45 bp range. The new deals did not prompt investor confidence, repricing all secondary bonds about 20-30 bp wider. In a bout of good news, Non-Farm Payrolls numbers on Friday increased by a surprising 312k, smashing forecasts. The positive economic number combined with dovish Fed Chairman Powell talk resulted in a positive end to the week with spillover effects visible this morning.
Canadian credit was a little sluggish this week as most investors were still in holiday mode. Autos continue to underperform due to generally weak auto sales and a tougher financing environment for consumers. Investors were surprised on Friday afternoon with a new deal from Ford. After issuing in the US the day before, Ford Canada gifted Canadian investors with a 3-year FRN at CDOR +303. Despite the cheap offering, the new bonds underwhelmed, closing about 6 bp tighter on the break.
Highlights from the week in Corporate Credit: Dec 17 – Dec 21, 2018
Hopes for a Christmas rally were dashed last week as US stocks endured their worst single week since 2008. Despite a decent technical picture for corporate bonds with no new supply, credit markets were left on the back foot in the face of relentless selling pressure in equities. A US government shutdown, falling oil prices, and mixed economic data were among the catalysts, but it was the US rate decision on Wednesday that really seemed to unnerve investors. The Federal Reserve defied considerable pressure from the White House by hiking rates 25bp for the 4th time in 2018. Although Chairman Powell tried to reassure investors that the pace was likely to slow in 2019, his comments were not deemed “dovish” enough. The rates curve flattened significantly following the news as the US 10-year treasury yield fell to a 9-month low.
Canadian credit dragged wider across a broad range of sectors. Energy names were of significance as crude oil dipped back below $46/bbl. The BBB rated market continues to be under pressure with Cable/Telco issuers and Consumer Discretionary issuers all 5-10 bp wider on the week. Investors focused most trading on old-style deposit notes in the front end of the curve, finishing around 2 wider.
We’d like to take the opportunity to wish our readers a happy holiday season. The Sentinel will return on January 7th
Highlights from the week in Corporate Credit: Dec 10 – Dec 14, 2018
Global credit finally enjoyed a bounce in sentiment as easing global trade tensions and Teresa May’s survival as UK Prime Minister outweighed evidence of a slowing Chinese economy. Despite the improved tone, corporate issuers remain on the sidelines with only a couple of new deals launched last week. Issuance should now remain light for the rest of the year which should support the technical tone for credit. The US Federal Reserve meets on Wednesday for the final time this year, and investors will focus on any statements regarding the path of interest rates in 2019. Recent inflation and employment data suggest additional rate hikes are justified, but President Trump continues to pressure the Fed to hold rates steady. Futures prices currently suggest 1-2 hikes expected in 2019.
Canadian credit lagged the global rally, with higher beta sectors like NVCC and REITs trading up to 5 bp tighter on very low volume. No new issue activity to drive trading, and overall there was a sense of consolidation at these wider spreads. Credit will continue to take its cue from stocks but the overt selling pressure we saw recently would appear to have subsided for the time being.
Highlights from the week in Corporate Credit: Dec 3 – Dec 7, 2018
The downturn in global credit continued into an eighth week as negative headlines and a lack of buying interest persist toward year-end. After what appeared to be a successful G20 summit, optimism faded throughout the week as both US and Chinese governments could not deliver consistent messaging, while the arrest of Huawei’s CFO in Vancouver appeared to ratchet up tensions at a critical time. The inversion of the US treasury curve between 2 and 5 years reflected investor concerns about a slowing economy in the face of projected rate hikes, and a disappointing jobs report on Friday pushed the 10y treasury yield to its lowest point since August.
Canadian credit was generally wider last week as well. There was good news for the energy sector in the form of production cuts from OPEC+ and the government of Alberta, however an inaugural deal for AltaGas Canada received only lukewarm response and was unable to hold new issue spread in secondary trading. Despite a strong Canadian jobs report on Friday, interest rates still finished the week significantly lower with 10-year Canada yields back to unchanged in 2018. Traders are now pricing in a slower path to normalization with only 1-2 rate hikes expected in 2019.
Highlights from the week in Corporate Credit: Nov 26 – Nov 30, 2018
Despite a positive week for global equities, credit markets remained firmly on the back foot. Supply was a significant factor, as issuers took advantage of lower market volatility to shift a pipeline of deals which had been waiting in the wings. 28 issuers brought deals to the US market last week for a combined total of $34 Billion. Spread concessions remain elevated, but deals struggled to perform and generally pushed secondary spreads wider. The US yield curve shifted lower after Fed Chairman Powell appeared to suggest the pace of rate hikes may start to slow. Global risk assets are opening up better this morning as the US and China appeared to declare a truce in their trade war, and US bond markets will close on Wednesday to mark the national day of mourning for George H.W. Bush.
Canadian spreads also widened last week to cap a difficult November for domestic credit. According to Merrill Lynch data, November was the worst single month for Canadian credit markets since 2011, as global equity volatility and falling oil prices contributed to investor unease. Despite the negative tone, Loblaw’s Inc was able to return to the primary market for the first time in 5 years. The deal performed well, but the remainder of the BBB space repriced 5-25 bp wider.
US Thanksgiving meant fewer new issues and lower trade volume generally for global credit markets last week. The risk-off tone continues with November shaping up to rival February as one of the most volatile months of the year. Brexit headlines, lower oil prices and weak tech sector earnings all created a difficult backdrop, and ETF outflows reflected investor unwillingness to bet against the recent trends. Industrial and Utilities sectors outperformed as investors moved into higher quality paper while Autos continue to widen, trading 10-40 bp wider on the back of internal control concerns at Nissan. Liquidity is expected to improve this week and new issue markets will be making up for lost time as we face a busy couple of weeks before things start to wind down for the holidays.
Canadian credit spreads also remain on the back foot and liquidity was poor as dealers struggled to find homes for bonds. The continued collapse in crude prices weighed heavily on the energy sector as concerns over oil supply and the discount of Canadian Select pushed out spreads by 10-15 bp. Despite the soft tone, two Canadian issuers squeaked into the primary market this week, Canadian Utilities and Vancouver Airport, both printing 30y deals now trading around ‘new issue.’
Highlights from the week in Corporate Credit: Nov 12 – Nov 16, 2018
US and European credit spreads widened to a two year high even as other risk assets showed signs of stabilization this week. US credit spreads were generally 10-15 bp wider across most sectors as investors continue to focus on selectively poor earnings, idiosyncratic credit risks (General Electric, Pacific Gas & Electric) as well as European political volatility. UK banks led European spreads wider following a spate of cabinet resignations over a potential Brexit compromise deal. US Thanksgiving is expected to make for a quieter week, and continued stock market stability should allow credit spreads to settle.
Canadian credit also experienced some significant widening due to the generally weak market tone. Maple Financials, Autos and Energy sectors were hit the hardest, widening by 10-20 bp on the week. The primary market was very quiet this week as potential issuers try to wait out the volatility. EPCOR Utilities was the only issue of note, printing a $200mm 30yr bonds at a spread of +145 bp, finishing the week 3 bp wider. Any new issue activity is expected to come Monday or Tuesday before markets quiet considerably in the back end of the week.
Highlights from the week in Corporate Credit: Nov 5 – Nov 9, 2018
US midterm elections passed largely as expected last week, allowing risk markets to advance as political uncertainty faded. However slower Chinese economic data and weak oil prices left markets on the back foot and credit spreads wider by week’s end. On Thursday the Fed left the overnight lending rates unchanged, but appeared to shrug off recent soft economic data by implying further hikes remain likely. The Treasury curve flattened on the comments with the 30-year yield 6 bp lower. Oil finished the week below $60 a barrel for the first time since February as the US continues to ramp up production.
Closer to home, earnings continued to take investors’ attention with a focus on the Real Estate and Life Insurance sectors. The primary market was decently busy with three deals coming to market. Australian toll-road operator Transurban was an issuer of note, printing a 10-year maple issue following a week of roadshows. The bonds finished 9 bp tighter for the week and sparked some selling of infrastructure paper including bonds issued by 407 Highway. Spreads of beleaguered conglomerate General Electric continue to widen in all markets, with the C$ 2022 bonds 50bp wider on the week.
Highlights from the week in Corporate Credit: Oct 29 – Nov 2, 2018
Global credit spreads finally enjoyed a moderate relief rally last week following a tough month of October. Optimism over a potential US-China trade deal and an upbeat US jobs report allowed risk assets to bounce off the lows by Friday. Annual US wage gains passed 3% for the first time since 2009 which supports the view of another Fed hike in December, pushing up the US 10y yield by 9 bp to 3.21%. US investors now turn their focus to the highly anticipated midterm elections on Tuesday and another large slate of earnings throughout the week.
Canadian credit underperformed as weak oil prices, mixed earnings and higher interest rates provided a weaker tone. Canadian preferred shares endured a difficult week as retail investors triggered heavy selling across the board. In corporate bonds, Financial and Utilities sector spreads held steady while higher beta credit like REITs, TMT and Energy leak wider. Despite the market weakness, five new issues came to the Canadian market. Shaw Communications was the highlight, printing the largest deal from a non-financial Canadian issuer in more than two months.
Highlights from the week in Corporate Credit: Oct 15 – Oct 19, 2018
Global credit remained on the back foot last week as the fallout from global equity volatility continues to play out. Decent US bank earnings were not enough to overcome concerns regarding interest rate policy, trade disputes and Italian deficit projections. The Automotive sector was hard hit as weak retail sales data, and a downward guidance revision from Daimler pushed out spreads in the sector by 7-15 bp. Corporate debt issuance remains light as volatility kept borrowers on the sidelines. Conagra ($CAG) was a notable exception, printing a US$6.5 billion deal across seven tranches to fund its recent acquisition of Pinnacle Foods. While the shorter 3-5 year tranches performed well, the 20-30 year maturities finished the week wider, resulting in a curve steepening of 11 bp from launch spread.
Canadian credit was mostly subdued thanks to decent earnings and a strong primary market. Industrial and energy sectors underperformed, widening 2-5 bp, while higher-rated Project Finance and Infrastructure sectors held in. The Canadian primary market was active with five issuers printing a total of C$2.1 billion throughout the week. For the most part, deals were well received by investors with Brookfield and Crombie REIT in particular tightening by up to 10 basis points on the break. Looking ahead, investors will be turning their attention to a busy week of earnings reports and an expected interest rate hike by the Bank of Canada on Wednesday.
Highlights from the week in Corporate Credit: Oct 8 – Oct 12, 2018
Global credit widened in sympathy with the sharp selloff in equities, but the overall tone remained stable with little signs of panic for corporate debt. Supply was limited as many firms are in issuance blackout due to quarterly earnings reports. Autos suffered a difficult week with Ford and GM 15-25bp wider after reporting a slowdown in Asian sales. Most spreads were 5-10 wider for the week and may take time to recover with the VIX volatility index finishing the week above 20 for the first time since April. The fall in stocks brought a halt to the selloff in government bonds, but yields remain elevated for the month, and the rate curve has steepened. US banks began to report earnings which have come through generally strong and helped to finish the week with a more balanced tone – expect issuance to pick up this week if markets hold.
In Canada, credit was active on the global sell-off in risk assets. During the risk-off tone, high beta credits underperformed with NVCC, Retail and TMT sectors all widening by 2-5 bp. Utilities and Infrastructure provided a haven, finishing the week relatively flat. The lack of any issuance in the Canadian market during October has created a technical bid for paper, keeping secondary credit spreads orderly. The last issuance in Canada was the RBC bail-in bond on September 24th.
Highlights from the week in Corporate Credit: Oct 1 – Oct 5, 2018
The rise in sovereign bond yields around the world to multi-year highs was the main story last week, with US Treasury yields leading the way on the back of positive NAFTA news, record high oil prices, strong economic data and hawkish Fed-speak. Most major bond indices, including Canada, are now in negative territory for the year. Credit spreads held in well, helped in part by a successful jumbo deal for Comcast to fund its acquisition of Sky Media. Friday’s US employment data for September came in below expectations, but accelerating wage growth and upward revisions to prior month’s data were enough to cement the rates sell-off. Energy sector bonds finished 2 to 7 bp better on the back of oil prices rising to multi-year highs.
Canadian credit markets welcomed the announcement of a US-Canada trade deal on Monday, moving spreads broadly tighter. However the euphoria felt short-lived, and attention soon returned to rising interest rates and other global factors. Canadian bank deposit note spreads traded tighter through the week as investors hoard these legacy bonds which are structurally superior to new bail-in bonds. Although there have been no domestic deals to follow on from Royal’s inaugural bail-in bond launched in September, Royal did tap the US market with a 5-year note as it tries to establish a clearing price for this new type of debt. BMO was also in the US market last week with a callable 10-year subordinated deal which looked tight and struggled to hold new issue spread. The lack of performance in the US deal caused domestic sub-debt spreads to widen modestly.
Highlights from the week in Corporate Credit: Sept 24 – Sept 28, 2018
North American credit markets finished the month on a positive note while Europe staged a modest retreat. The US Federal Reserve hiked rates for the third time in 2018 and signalled another could follow before year-end. Bond yields in both Canada and the US finished September near multi-year highs as bond traders anticipated a resolution to intense trade talks. European markets were weaker as the Italian coalition government seems intent on running a greater budget deficit than European guidelines. Italian sovereign spreads traded 25bp wider on the week.
Trade talks aside, the main news in Canadian credit markets was the long-awaited launch of the first bail-in bond by a Canadian bank. On Monday RBC brought a $2 billion 5-year note approximately 13 basis points behind its existing deposit note paper. The deal was priced at the tight end of expectations and found solid demand but struggled to tighten much inside of launch spread by Friday. Elsewhere Enercare spreads were substantially wider after being placed on watch for downgrade by both DBRS and S&P. The announcement of a trade deal overnight has given Canadian and US markets a buoyant tone to start the week.
Highlights from the week in Corporate Credit: Sept 17 – Sept 21, 2018
Global credit extended the tightening streak as optimism over the global economy, clarity in tariff implications and stabilization in EM assets have all helped to buoy global credit. Trade war fears were largely shrugged off in the corporate credit space as China’s retaliation to Trump’s new tariffs were less than expected. The investment grade market was well bid as increases in rates and solid tone generated strong demand for high-quality and longer duration bonds.
Canadian credit continues to tread water with the exception of Financials as the era of the deposit note comes to an end. The Canadian corporate bond market is entering uncharted territory this week as the bail-in regime begins, replacing deposit notes with equity-linked bail-in bonds. The scarcity of deposit notes and ongoing argument of spread basis has created technical demand for secondary financial paper, tightening 2-5 bp for the week.
Highlights from the week in Corporate Credit: Sept 10 – Sept 14, 2018
Global credit spreads posted a strong week as emerging market tensions eased and US economic data suggested inflation remains in check. US 10-year government yields rose back toward 3%, which created demand for spread assets. Most sectors traded tighter with European banks and Energy leading the way.
The tone was more balanced in Canada with credit spreads finishing the week broadly unchanged. Higher beta sectors such as Consumer Retail bonds and Real Estate contributed to the underperformance. The Canadian primary market saw just over $3 billion of supply this week including an innovative “Women in Leadership” deposit note for CIBC designed to fund lending to corporations promoting gender equality.
Highlights from the week in Corporate Credit: Sept 3 – Sept 7, 2018
Global credit spreads traded within a tight range throughout the holiday shortened week as a resurgence of primary supply was the main story. Over $55bn of new corporate deals priced in the US alone, led by a successful $19 billion issue by Healthcare giant Cigna Corp to fund their acquisition of Express Scripts. Most deals were able to price well and find willing buyers after an August that was starved for supply. European spreads had a mixed week as headlines out of Turkey continued to exert pressure, while Italian spreads rallied on improved political rhetoric. The US Treasury curve flattened and short-end yields rose after a strong payrolls report showed hourly earnings had risen 2.9% over the past year – the most since 2009.
Canadian Corporate spreads edged wider as the market digested financial issuance from TD and Caisse Desjardins. The Bank of Canada kept rates steady but cautioned further hikes were still warranted. Government yields rose off 1-month lows while the Canadian dollar finished the week softer as trade talks in Washington struggled to make meaningful progress.
Highlights from the week in Corporate Credit: Aug 27 – Aug 31, 2018
Global credit spreads edged modestly wider on low volume to finish the last week of summer, as ongoing NAFTA negotiations and developing currency issues in Argentina and Turkey contributed to a risk-off tone. Higher beta names, particularly industrials, were hardest hit going into month-end as hopes of a trilateral NAFTA deal did not come to fruition, further pushing back the deadline. As a result of the weak tone, the US dollar and Treasuries posted gains for the week. The new issue market was virtually non-existent with just under $5bn of new issues leading up to the long weekend. The first week of September is expected to be busy as vacationers return from summer holidays with a full slate of economic data and guidance from a number of Fed officials.
Canadian credit finished the week relatively flat as NAFTA negotiations with the US, the Trans Mountain ruling by the Federal Court of Appeal and GDP numbers dominated headlines. Canada’s economy posted a second strong quarter with GDP expanding 2.9% in Q2 of 2018. The print was below the 3.1% expected by consensus but close to the Bank of Canada’s estimate of 2.8%. Given the results, the 5yr government bond fell by 5 bp while pushing back expectations of a rate hike to December. The Canadian primary market was also slow with heavy funding from the domestic banks outside of the C$ market. BMO was the only notable issuer, printing $1.25bn of a 10y deposit note with little concession.
Highlights from the week in Corporate Credit: Aug 20 – Aug 24, 2018
Global credit leaked wider throughout the week while U.S. equities closed at all-time highs as investors largely shrugged off US-China trade talks, President Trump’s legal troubles and fresh Russian sanctions. Markets stabilized on Friday after Fed Chair Jerome Powell reiterated a gradual hiking cycle in his first Jackson Hole speech. Post Powell’s comments, expectations of a September rate hike have now increased to 95% while rates were unchanged. China and the U.S both implemented tariffs on $16bn of each-other’s imports, as two days of talks between the two nations ended without any resolution. The primary market was relatively quiet last week as eleven borrowers combined to print $10bn of new supply. This week, issuance is expected to slow down completely as we enter the last week of summer with $5bn of supply expected.
Canadian credit outperformed its global counterparts as oil prices improved and the expected issuance from the big Canadian banks post-earnings did not materialize, creating a technical demand for paper. Investors were greeted with a couple other issues including two corporate deals from Heathrow Airport and Honda. Heathrow Airport came with an expected 12yr tranche, printing 400mm with a slight concession to secondaries at +148, finishing the week at new issue spread.
Highlights from the week in Corporate Credit: Aug 13 – Aug 17, 2018
Global credit stabilized as Turkish leaders sought to reassure investors of their path toward solving Turkey’s economic issues while the announcement of trade talks between the US and China later in the week led to a strong finish. Despite the encouraging headlines, European banks traded heavily, pulling down the broader European Index. Oil also continued to trade downward after Wednesday’s inventory report showed a surplus of inventories. Issuance continued at a decent clip, printing close to $30bn worth of paper before the primary market is expected to dry up as Labour Day nears and as central bankers meet in Jackson Hole this week.
Canadian credit largely followed suit as we enter the final weeks of summer. The overall tone was mixed but positive as investors expect strong inflation data and renewed mortgage growth to be reflected in bank earnings reports this week. Canadian inflation numbers for July surprised to the upside at 3% due to increases in gas and airfare prices, though core CPI was largely in line. The results further solidify expectations for at least one more rate hike in 2018. Bell Canada launched the only domestic issuance of note, printing $1 billion of 10-year paper with a modest concession.
Highlights from the week in Corporate Credit: Aug 6 – Aug 10, 2018
Global credit took a sudden turn wider this week due to a jump in global issuance and economic concerns out of Turkey. The recent weakness of the Turkish Lira (TRY) came into investor’s focus after Trump’s tweet about the doubling of tariffs on Turkish steel and aluminum, enabling the TRY to fall to record lows. Adding to the volatility, the ECB reported its concern over the Eurozone’s major lenders exposure to Turkey. European Financials were hit the hardest on the news with Spain’s BBVA, Italy’s UniCredit, and France’s BNP all trading 15-25 bp wider on the week. With fears of a spillover from Turkey, investors sought refuge in US and German government bonds. Last’s weeks primary supply of $37.6bn surprisingly exceeded expectations of $20bn and did not improve investor’s tone. New issuance was highlighted by deals from BNP and Lloyds, both managing to issue before headlines out of Turkey took over.
Canadian credit was relatively quiet, largely dodging the credit widening due to Turkish headlines. New issuance roared back to life after a very quiet summer with $2.75bn printed through three issuers. AT&T ($T) got things started with a two-tranche maple issuance consisting of 7yr and 30yr notes. Both tranches performed well on the break but leaked wider to finish the week at new-issue spreads.
Highlights from the week in Corporate Credit: July 30 – Aug 3, 2018
Global credit inched tighter last week amidst a backdrop of corporate earnings and macro news including rate decisions from the Fed, the Bank of England and Bank of Japan. US credit traded 5 bp tighter week over week as generally positive earnings flowed in, highlighted by the strong beat by Apple. Energy, Telecom, Life Insurance, and Bank sectors continue to lead the move, averaging 20 bp tighter over the last month. US interest rates were steady on the week as The Federal Reserve opted to leave rates unchanged but emphasized strong performance in the economy. The combination of strong Fed guidance and decent jobs numbers on Friday left the door open for two more rate hikes in 2018. Conversely, the Bank of Japan provided a dovish tone, signalling that they will maintain their easing measures and keep rates low for the foreseeable future.
Canadian credit moderately outperformed on the week, attributable to strong earnings, very light dealer inventories and robust economic data. Canadian GDP for May beat expectations at +2.6% year over year, allowing Canadian rates to rise while providing confidence to investors. The lack of recent issuance has created a noticeable bid in secondary domestic markets, particularly for longer-dated paper and deposit notes.
Highlights from the week in Corporate Credit: July 23 – July 27, 2018
Global credit markets continued the summer rally as investors digested mixed earnings amid a macro backdrop of strong economic data and easing trade tensions. Sectors including Energy, Industrials and Financials rallied while Consumer Discretionary and Tech underperformed. The FAANGs were the laggards of the week as Facebook set the tone with a sharp selloff amid headwinds from platform changes and increased costs related to the privacy scandal earlier in the year. On the macro front, Investors were encouraged by the U.S second quarter GDP data, growing at its fastest pace since 2014 at 4.1%. European credit also contributed to the rally as the ECB reiterated its plan to end bond purchases and keep interest rates unchanged through the summer of 2019, citing a dovish tone.
Canadian credit held firm on the back of easing trade tensions and robust earnings. Almost all Canadian IG sectors experienced spread tightening, although significantly lagging their global counterparts. Sectors like Deposit Notes, Pipelines and REITs performed well, mostly attributed to outperformance in the long end of the curve. The primary market remains quiet as we enter the summer months with $1bn of new supply from two issuers, Power Corp and CN Rail.
Highlights from the week in Corporate Credit: July 16 – July 20, 2018
Global credit traded within a tight range throughout the week as record earnings evened out the negative implications of further trade wars. President Trump warned that he was ready to impose tariffs on the full $500bn in Chinese imports after already enacting tariffs on $34bn of goods from China this month. The EU also entered the mix, warning that it would introduce retaliatory tariffs in response to Trump’s proposed 20% auto import tariff. Money center banks including JPMorgan, Citigroup and Bank of America were busy in the primary market post-earnings. Outperformers were skewed toward front-end floating bonds.
Canadian credit lagged US credit as trade tensions, headwinds in commodities, and raising rates kept investors at bay. Canadian banks were the highlight of the week with an upgrade by Moody’s due to an expected methodology change, resulting in the deposit notes of Scotiabank, BMO, CIBC and National Bank upgrading to the AA index bucket, repricing the sector 2 bp tighter by weekend. Encouraging inflation data on Friday increased the odds of another rate hike, enabling rate-reset preferreds to rally along with government yields while credit faltered. The Canadian primary market was relatively quiet with $1.5bn of supply as most issuers remain in blackout periods.
Highlights from the week in Corporate Credit: July 9 – July 13, 2018
Global credit rallied throughout the week as the prospect of trade talks between the U.S. and China helped settle nerves while President Trump reaffirmed the U.S. commitment to NATO. Commodities, especially base metals and soybeans, were under pressure due to worries of decreasing demand from China given indications of slowing growth and effects of tariffs. Investors started to brush off trade concerns in credit markets later in the week, focusing instead on what is expected to be a strong quarterly earnings season. By the end of next week, 20% of the S&P 500 will have reported, skewed towards financials and industrials.
Canadian credit traded flat on the week due to a combination of trade concerns, a tightly priced new issue market and the anticipated rate hike by the Bank of Canada (BoC). Investors awaited the BoC’s 25bp rate hike on Wednesday, raising the overnight rate to its highest level in almost 10 years while government yields finished flat on the week as most of the hike was already baked in. The new issue market roared back to life early in the week with just over $2.5bn spread across Industrials and Financials, focused in the 5-year tenor. Most new issues launched with little concession but still encountered heavy demand for bonds.
Highlights from the week in Corporate Credit: July 2 – July 6, 2018
Bond trading volumes were light in a holiday shortened week, with virtually no new corporate issuance in North America for the first time this year. Credit markets welcomed the break and index levels recovered somewhat from recent woes despite escalation of trade war tariffs and rhetoric. President Trump imposed tariffs on $34bn of Chinese imports, a move which was quickly reciprocated by China, and Canadian retaliatory tariffs came into effect on July 1st. The lack of strong market reaction suggests trade risks are already priced in and would require further escalation to cause additional concern. Minutes of the June FOMC meeting released on Thursday revealed worries on trade and a flattening yield curve, while US payroll numbers on Friday showed better than expected gains without significant pressure on wages.
Canadian employment numbers on Friday posted better job gains than expected though most were in the part-time category. Lack of surprises in the employment report would appear to clear the way for a rate hike on Wednesday, with market indicators now pricing in an 87% chance of a 25bp hike. New issue markets are expected to re-open on Monday and we anticipate a busier week although volumes will remain seasonably light.
Highlights from the week in Corporate Credit: Jun 25 – Jun 29, 2018
Canadian credit spreads were moderately wider on the week but still finished the first half of 2018 substantially outperforming global indices.
Highlights from the week in Corporate Credit: Jun 18 – Jun 22, 2018
Global spreads opened wider to start the week following Trump’s announcement to explore new sanctions on close to $200bn in Chinese exports. European credit was also weaker due to uncertainty regarding German politics, as nationalists showed signs of discontent with Angela Merkel’s coalition and her immigration policy. Late on Friday, President Trump tweeted a warning that if trade barriers are not broken down soon, the US will place a 20% tariff on all EU cars coming into the US, placing a dampener on auto spreads.
Canadian credit spreads continued to outperform this week, driven in part by a hot new issue market. Most deals this week launched with minimal spread concessions and a strong subscription base. Canadian issuers printed a total $7.5bn of supply last week, making June the highest month of issuance so far this year. New deals were spread across a variety of sectors including Financial, Auto, Utilities
and Pipelines. Natural gas producer Keyera was a notable deal, printing a $400mm 10 year that priced at +177bp over the government curve and ended the week 7 basis points tighter.
Highlights from the week in Corporate Credit: Jun 11 – Jun 15, 2018
Global credit continued to recover from the prior month’s weakness as investors sifted through competing headlines from central banks and trade rhetoric. On Wednesday, the FOMC raised the Federal Funds Rate by 25 bp to 2% and forecast two more rate hikes for 2018. These results were interpreted as hawkish relative to market expectations causing equities to fall while credit stayed firm post announcement. On Thursday attention shifted to the European Central Bank (ECB) where Draghi announced that the Bank’s asset purchase program would begin to slow in September through the end of this year. Draghi also emphasized the policy rate would remain unchanged at zero through at least the summer of 2019 which was interpreted as more dovish than market expectations. The Euro sold off after the meeting while European credit rallied.
Canadian credit followed suit this week with most sectors tightening on the back of generally receptive central bank tone while positive developments from the REIT space and strong primary markets kept investors happy. The Canadian market welcomed $1.9bn of supply this week with a return to the market from Canadian Tire and an inaugural green bond from the pension issuer CPPIB. The performance of the new issues given the small initial concession shows the underlying tone of Canadian credit is still alive and strong.
Highlights from the week in Corporate Credit: Jun 4 – Jun 8, 2018
Global credit markets struggled to gain any traction as ongoing supply contributed to technical heaviness while Canadian credit continued to buck the softening trend that pervaded most global markets last week.
Highlights from the week in Corporate Credit: May 28 – Jun 1, 2018
Ongoing political rumblings in Europe and trade wars capped off a challenging month for global credit. Market volatility took hold with a spike on Tuesday as markets in the US and UK came back from holidays while a strong US jobs report on Friday helped to restore confidence. Italian politics were in full focus as Giuseppe Conte resigned as designated Prime Minister after the Italian president refused
to accept Conte’s candidate for finance minister. Credit spreads in most sectors pushed wider as a result with Yankee banks trading 10-30 bp wider and Italian banks trading up to 60-70 bp wider. The US 10-year Treasury rallied sharply as investors sought a flight to safety, touching a low of 2.76% on Tuesday before finishing the week at 2.9%. The week ended on a strong note as Trump confirmed a meeting
with North Korean leaders in June while record employment numbers boosted optimism.
Highlights from the week in Corporate Credit: May 21 – May 25, 2018
Geopolitical issues and trade/tariff headlines took centre-stage last week, putting a dampener on global credit. As earnings season comes to a close, investors turned their attention to the North Korean summit cancellation and political uncertainty in Italy and Spain. In Spain, a major centrist party announced it was ready to back a no-confidence motion against Prime Minister Rajoy, while worries continue in Italy about the actions of the newly created populist coalition government. Away from politics, economic data in Europe were grim. The Eurozone Composite PMI index sank in May to an 18-month low. European credit spreads were trading generically 5-10 bp wider with Italian and Spanish banks leading the way. Italian sovereign debt continued to sell off with the Italy-Germany 10-year yield reaching its widest spread since 2014.
Canadian credit outperformed on a holiday-shortened week although tone still felt soft. Apart from the geopolitical backdrop, Canadian bank issuance and a drop in the price of oil took focus. After strong quarterly results, both CIBC and TD printed multi-billion-dollar deposit note deals. Although both deals were oversubscribed, the heavy supply and concession repriced the deposit note curve, widening spreads by 3-5 bp for the week.
Highlights from the week in Corporate Credit: May 14 – May 18, 2018
Heavy supply amid rising interest rates gave credit markets a defensive tone last week. Hopes of a NAFTA deal were quickly deflated as the soft deadline of May 17th passed while representatives from all sides gave no indication of progress. The primary market in the US was active as borrowers combined to price almost $40 billion of new notes, led by the merger financing of Keurig-Dr. Pepper which
included $8bn across six tranches. In Europe, Italy’s populist Five Star party joined forces with the anti-immigrant League party to claim a slim majority in the Italian parliament. Italian government yields rose 50bp and bank credit spreads widened amid fears of potential economic mismanagement.
North American interest rates were back in the headlines as Canadian 10-year yields rose sharply to reach 2.5% for the first time in four years. Although credit buyers ultimately prefer higher all-in yields, the downward momentum in prices is pushing some to the sidelines while they await stability. As a result, the Canadian corporate market was relatively dormant leading up to the long-weekend. Enbridge
spreads tightened materially as the company announced investor-friendly changes to its corporate structure. April CPI reported on Friday came in mostly as expected, cooling the rise in government yields and dampening expectations for a rate hike in May.
Highlights from the week in Corporate Credit: May 7 – May 11, 2018
Global credit markets had an active and positive week as traders took political news in stride and cheered a benign inflation report from the U.S. on Thursday. President Trump confirmed that America would withdraw from the 2015 Iran nuclear deal, clearing the slate of geopolitical risks for the moment.
Canadian credit traded flat throughout the week as mixed earnings and a decent employment report kept investors on edge.
Highlights from the week in Corporate Credit: Apr 30 – May 4, 2018
Global credit started May with a modest risk-off tone as bond investors continue to adjust to rising US government yields and look ahead to expected heavy new issuance in the next few weeks. The US Federal Reserve left interest rates unchanged on Wednesday while expressing confidence that inflation was trending towards their 2% target. Oil and trade remain in the spotlight with threats to the Iran nuclear deal pushing oil towards $70, and US-Chinese trade talks failing to find much common ground. On Friday it was reported that the U.S. economy added 164,000 jobs in April, which missed estimates but March numbers were revised higher. That was enough to send stocks higher and finish the week off on a more positive note.
The Canadian market remains a relative safe-haven, as a less hawkish central bank gives bond investors more confidence that interest rate expectations will remain more balanced.
Highlights from the week in Corporate Credit: Apr 23 – Apr 27, 2018
Global credit markets were modestly softer last week, led by wider spreads in the US as 10-year Treasury yields finally breached the psychological 3% yield barrier last seen in 2013. The combination of rising yields, speculation of a “peak” in earnings and M&A activity placed pressure on US spreads even as North and South Korea signed a deal declaring a resolution to the seven-decade war.
Highlights from the week in Corporate Credit: Apr 16 – Apr 20, 2018
Canadian Credit was able to maintain positive momentum due to constructive trade news and strong performance from new issues. The publication of the final Canadian bank bail-in and TLAC regulations as well as the Bank of Canada leaving the benchmark rate unchanged at 1.25% were both expected by investors but nonetheless supported a constructive tone in credit.
Highlights from the week in Corporate Credit: Apr 9 – Apr 13, 2018
Despite a challenging few days for the White House and a heightening of tensions over Syria, bond traders focused instead on first-quarter earnings and a conciliatory tone from China to take credit markets higher for a second consecutive week. Chinese President Jinping calmed investors with a speech giving comfort that fears of a trade war were overblown. Focus then shifted to the first earnings season under the new tax reform, kicked off by Wells Fargo, JP Morgan and Citigroup. Investors are now expecting an average earnings boost of 5%. Inflation remains firm with March core CPI at 2.1% and Fed minutes showed further support for rate hikes, pushing 10-year Treasury yields higher to 2.83%.
Highlights from the week in Corporate Credit: Apr 2 – Apr 6, 2018
Volatility returned to risk markets this week as conflicting statements from the White House regarding the likely impact of trade sanctions kept investors lurching from optimism to pessimism. The employment report on Friday showed that the US economy added only 103,000 jobs in March but markets focused primarily on wages, which were firm at +2.7% YoY. In a speech on Friday Federal Reserve Chair Powell took a hawkish stance, describing the economy as close to full employment and stating that a turbulent stock market was unlikely to change the Fed’s approach to monetary tightening. The yield on the 10-year Treasury rose 5bp for the week sending US and Canadian bond indices lower. Despite the cautious tone, credit markets were generally constructive with banks leading spreads moderately tighter.
Highlights from the week in Corporate Credit: Mar 26 – Mar 29, 2018
Global credit markets remained choppy but finished the week on a positive note as fears of a global trade war eased. American credit was firm amid light volumes in a holiday-shortened week, largely underperforming the move higher in equities but still outperforming global credit for the week.
Highlights from the week in Corporate Credit: Mar 19 – Mar 23, 2018
Trump’s threat of a trade war coupled with the FOMC meeting drove global equities and credit weaker for the week, causing investors to jump into safer assets such as gold and the Yen. The much-anticipated rate increase of 25 bp from Fed Powell’s first testimony was viewed as slightly dovish upon lower chances of a fourth rate hike in 2018.
Highlights from the week in Corporate Credit: Mar 12 – Mar 16, 2018
Turn-over within the US federal administration coupled with an overhang of new supply contributed to a softer tone for US credit. Secretary of State Rex Tillerson was fired from his position on Monday citing policy differences with President Trump, setting the cautious tone for the week.
Highlights from the week in Corporate Credit: Mar 5 – Mar 9, 2018
Despite a volatile week on the back of the resignation of White House Economic Advisor Gary Cohn, concern over tariffs and a strong jobs report, US credit markets finished broadly unchanged. Pharma giant CVS finally issued its long anticipated jumbo bond deal, the third largest IG deal in history at US$40 billion to fund its purchase of Aetna.
Highlights from the week in Corporate Credit: Feb 26 – Mar 2, 2018
Threats by US President Trump to introduce tariffs on steel and aluminum, potentially sparking a global trade war, were enough to push credit and equity markets into the red last week, and sent US credit spreads close to a three-month wide.
Highlights from the week in Corporate Credit: Feb 20 – Feb 23, 2018
A holiday-shortened week in the US and Canada contributed to a relatively narrow trading range for credit. Despite a more balanced tone and improving equity markets, credit continues to react to heightened volatility, ongoing supply and retail outflows.
Highlights from the week in Corporate Credit: Feb 12 – Feb 16, 2018
It was a week of relative calm following tumultuous gyrations earlier in the month. Equity markets bounced, with US stocks moving back into positive territory for the year, while Canadian stocks struggle to catch up. Credit markets were more mixed, as investors and traders continue to rebalance portfolios in light of higher equity and rate volatility.
Highlights from the week in Corporate Credit: Feb 5 – Feb 9, 2018
The global equity selloff dominated headlines throughout the week with one of the worst weeks for US stock indices since the financial crisis. Credit markets attempted vainly to shrug off the moves in equities, and it was not until late in the week where spread widening began to take hold. Flows were below average as trading dried up while the VIX hit multi-year highs not seen since 2015.
Highlights from the week in Corporate Credit: Jan 29 – Feb 2, 2018
The relentless rise in global yields finally took the shine off stocks last week, which culminated on Friday with the worst single day loss for the Dow in almost two years. So far global credit spread reaction has been somewhat muted, with bond investors willing to view the selloff in stocks as overdue profit-taking after a near relentless four-month rally. Canadian credit was similarly spared although a new NVCC sub-debt bond for National Bank and a $2 billion 10-year deposit note for Scotiabank saw bank spreads trade heavy throughout the week.
Highlights from the week in Corporate Credit: Jan 22 – Jan 26, 2018
Despite a negative week for Canadian stocks, domestic credit spreads continued to move tighter as higher interest rates and underwhelming supply created technical demand. US credit shrugged off a temporary government shutdown and a weaker dollar to finish another positive week. The fall in the US Dollar followed comments by the US Treasury Secretary and furthered by strong GDP numbers out of Europe as well as speculation the ECB would allow interest rates to rise more quickly than anticipated.
Highlights from the week in Corporate Credit: Jan 15 – Jan 19, 2018
American credit spreads finally took pause last week after two months of near relentless tightening. A flurry of new issue supply from US banks was the main catalyst. Canadian credit ignored US headlines and continued to tighten as investors remain starved for new paper. What supply there was only served to re-price credit tighter, with a new issue by H&R REIT moving sector spreads 5-7bp for the week.
Highlights from the week in Corporate Credit: Jan 8 – Jan 12, 2018
Credit markets shrugged off rising rates and NAFTA headlines to continue a strong start to 2018. Canadian credit lagged later in the week following news that the US is close to announcing its withdrawal from NAFTA. Despite the negative headlines, Canada’s first corporate issues of 2018 stormed to success.
Highlights from the week in Corporate Credit: Jan 2 – Jan 5, 2018
The first trading days of the new year extended the positive momentum from 2017 as investors came back from the holidays with a slew of positive economic news out of Europe, North America and Asia. Canadian credit was also very well bid, driven by a lack of new supply, strong economic numbers and higher oil prices.
Highlights from the week in Corporate Credit: Dec 18 – Dec 22, 2017
The tone of global corporate credit remained positive as the last days of business wound down before Christmas break. Enbridge, Inter Pipeline and Emera led the Canadian energy & utility sectors wider after rating agencies expressed reservations about the industries’ high debt loads and large capex programs.
Highlights from the week in Corporate Credit: Dec 11 – Dec 15, 2017
As markets prepared to enter into holiday mode during the next couple weeks, a smattering of new issues, central bank meetings and strong secondary trading kept corporate bond investors busy throughout the week. The tone of Canadian credit was focused a handful of successful new issues including Reliance, Honda and SmartCentres REIT.
Highlights from the week in Corporate Credit: Dec 4 – Dec 8, 2017
Global markets remained relatively flat throughout the week until a slew of positive headlines around the world contributed to a strong finish on Friday. The Canadian corporate market continues to be receptive in secondary trading as well as the new issue front. Canadian mortgage financer MCAP and transport company Penske were able to launch successful issues with small sizes, crowding in buyers with strong follow-on secondary trading.
Highlights from the week in Corporate Credit: Nov 27 – Dec 1, 2017
The post-Thanksgiving Day week has traditionally been active for Canadian credit markets and this week was no exception, with bank earnings, a strong employment report, and over 7 billion in new corporate bond issuance. Consumer/Retail was one of the stronger performing sectors on the week after Metro Inc. ($MRUCN) successfully launched a three-tranche deal.
Highlights from the week in Corporate Credit: Nov 20 – Nov 24, 2017
Canadian credit markets roared to life early in the week before liquidity dried up due to American Thanksgiving. Secondary spreads were unchanged to a touch wider (in longs) as the market works to digest the recent slate of long bond issues.
US credit spreads continued to show an improved tone to regain some of the losses from earlier in the month. Most business was done during the first couple days, allowing some new issues to price.
Highlights from the week in Corporate Credit: Nov 13 – Nov 17, 2017
The selloff in US credit spreads has lingered in November on the back of outflows from High Yield funds. Weak industrial output and government crackdowns out of China set the tone on Monday, enabling the Bloomberg commodity index to decline the most in six months. However on Thursday Republicans passed their tax-overhaul bill in Congress and TMT spreads tightened over further M&A talk, enabling corporate bonds to finish the week significantly off the Wednesday lows.
Highlights from the week in Corporate Credit: Nov 6 – Nov 10, 2017
Global credit spreads took a step back from all time tights as investors struggled to digest headlines regarding the US tax plan amid large amounts of corporate supply. A 7 billion issue from Apple Inc. (AA+) on Monday got the week off on a sour note as a lack of concession saw the deal trade as much as 7bp wider in early trading. Investors were quick to demand greater pricing concessions on subsequent issues.
Highlights from the week in Corporate Credit: Oct 30 – Nov 3, 2017
Canadian credit continues to defy gravity as bond spreads set new tights for the year. Energy paper led the way as oil prices closed at a two year high above $55. Across the pond, spreads of Italy’s largest banks including Intesa and Unicredit were up to 20bp tighter on the week after S&P upgraded the country by one notch to BBB-mid.
Highlights from the week in Corporate Credit: Oct 23 – Oct 27, 2017
The strong sentiment in global credit shifted over to Canadian markets this week, mixing with a dovish rate decision from the Bank of Canada on Wednesday. In the primary market, Toromont issued its long-awaited deal, printing 500mm 10-year paper priced at CRV+175 bps. The deal was very well received, closing 10 bps tighter for the week.
Highlights from the week in Corporate Credit: Oct 16 – Oct 20, 2017
Credit investors managed to brush off macro issues including the NAFTA negotiations and the Catalan independence vote, focusing
instead on the advancement of Trump’s legislative agenda to maintain spreads at or near the tights of the year.
Highlights from the week in Corporate Credit: Oct 10 – Oct 13, 2017
A holiday shortened week in North America saw spreads broadly unchanged with Europe rallying while the US market traded mildly softer. Despite US earnings season putting many large corporates in blackout, a number of notable new bond issues launched.
Highlights from the week in Corporate Credit: Oct 2 – Oct 6, 2017
Amid sombre news of the tragedy in Las Vegas to start the week, trade volumes were muted but spreads kept grinding tighter. A notable new issue in the US this week came from BNS, launching its first AT1 deal: 1.25Bn with a 4.65% coupon. Anticipation of this deal caused domestic prefs and NVCC bonds to rally on expectations of reduced NVCC issuance in Canadian Dollars.
Highlights from the week in Corporate Credit: Sep 25 – Sep 29, 2017
Total Canadian corporate issuance for the third quarter finished above $30 billion for the first time ever! Meanwhile, Stephen Poloz caught currency traders off guard with a speech on Wednesday in which he suggested the Bank of Canada would proceed “cautiously” on any future rate hikes.
Highlights from the week in Corporate Credit: Sep 18 – Sep 22, 2017
A subdued week in credit markets kept investors at bay as the US Fed rate decision on Wednesday dominated market attention. The Federal Reserve confirmed that after 9 years of open market bond purchases which saw its balance sheet inflate from under 1 Trillion to 4.5 Trillion dollars, it will begin reducing its balance sheet starting October 1, effectively withdrawing stimulus from the market.
Highlights from the week in Corporate Credit: Sep 11 – Sep 15, 2017
American markets led the way this week with a risk-on tone as the potential impacts of Hurricane Irma appeared overstated and a deal between Trump and the Democrats to temporarily raise the debt ceiling put tax reforms back on the table. New issue activity remained brisk, with most deals finding strong investor demand. Over $38bn of US investment grade paper priced this week, surpassing the 25-30bn expected.
Highlights from the week in Corporate Credit: Sep 4 – Sep 8, 2017
The first week after Labour Day is typically one of the busiest of the year for credit markets and last week was no exception. The softer tone did not stop the flurry of new bond deals on both sides of the border, with $45 billion of supply in the US and over $3 billion in Canada. The rush of supply, tensions in North Korea and the potential damages from Hurricane Irma contributed to a broad widening of spreads in most sectors. New issue concessions remain tight and after-market spread performance for most deals was flat or wider.
Highlights from the week in Corporate Credit: Aug 28 – Sep 1, 2017
Trading volumes in credit were typically low for the last weekend of August. Primary issuance (finally) fell quiet, allowing credit markets to consolidate after a surprisingly busy summer. Hurricane Harvey and North Korea provided a macro-backdrop, with the forced evacuation in Houston affecting energy and insurance spreads. Primary supply is expected to return with a vengeance after Labour Day with plenty of deals reportedly in the pipeline.
Highlights from the week in Corporate Credit: Aug 21 – Aug 25, 2017
Global credit spreads were mixed throughout the week as investors focused on corporate earnings and secondary trading while they waited for commentary out of Jackson Hole. Canadian corporate spreads were also mixed, driven by solid performance in Airports, Media and Utilities, while Retailers lagged. The primary market remains surprisingly active for August, with $1.6 Billion of Canadian corporate new issuance priced last week.
Highlights from the week in Corporate Credit: Aug 14 – Aug 18, 2017
Canadian credit was in focus this week with a C$2.5 billion inaugural maple deal for Apple grabbing investor attention. The launch on Tuesday ensured plenty of two-way trading throughout the week as investors made room for such a large new issue. Credit spreads in the US rebounded after the North Korean selloff of the prior week. Market tone remains lukewarm as investors weigh the Trump administration’s ability to follow through on its reform agenda. Benign inflation data and the release of Fed minutes pushed US rates down to a 2-month low.
Highlights from the week in Corporate Credit: Aug 7 – Aug 11, 2017
A surprisingly heavy week of new issue supply against a backdrop of rising geopolitical tensions proved too much for global credit markets last week. US markets fared the worst, with the benchmark corporate spread index widening by 7bps – its worst 1-week performance in 18 months. Even as Canadians were enjoying an extended weekend on Monday, US bond markets kicked off the week with 13 new corporate issues, a surprising number for mid-August which set the tone for softer spreads.
Highlights from the week in Corporate Credit: Jul 31 – Aug 4, 2017
Strong Canadian earnings and a shortage of new issuance resulted in heavy secondary trading throughout the week, specifically in the telecom and financial sectors. Government yields were lower as Canada pulled back from the momentum of the last couple of weeks. American credit took a breather as a combination of specific earnings misses, disappointing auto sales data and political turmoil in the Trump camp caused spreads to widen.
Highlights from the week in Corporate Credit: Jul 24 – Jul 28, 2017
Global investors took advantage of strong credit tone and higher yielding instruments. Canadian credit performed well as solid earnings, an uptick in energy, and a string of good economic data gave investors confidence. Canadian government 10y yields rose above 2 percent for the first time since 2014 as investors continue to price in a second rate hike this year, capped off by the best year-over-year GDP metrics since 2000.
Highlights from the week in Corporate Credit: Jul 17 – Jul 21, 2017
Following last week’s Bank of Canada rate announcement, Canadian corporate spreads tightened modestly across most sectors as investors took advantage of lower volatility, strong corporate earnings and quality new issuance. Government yields steadied throughout the week, falling slightly lower on Friday on the back of a mixed CPI report, reinforcing the Bank of Canada’s gradual path towards higher rates.
Highlights from the week in Corporate Credit: Jul 10 – Jul 14, 2017
Central bank policies continued to dominate headlines on both sides of the border as Canada raised its key interest rate for the first time since 2010 and as Fed Chair Yellen provided dovish guidance during a testimony to Congress. Canadian government yields continued to rise as Governor Poloz provided hawkish comments following a rate increase of 25 bps. Global corporate credit tone continues to be receptive and modestly risk-on, further supported by a light amount of issuance in the primary market.
Highlights from the week in Corporate Credit: Jul 3 – Jul 7, 2017
The holiday-shortened week in Canada and the US made for very quiet credit markets to start the month of July. Interest rates dominated the conversation as the German 10-year bund reached its highest yield in 18 months and developed-market government bonds around the world sold off in sympathy. Here in Canada, a strong employment report on Friday has market participants convinced that the Bank of Canada looks set to raise rates this week for the first time in about seven years.
Highlights from the week in Corporate Credit: Jun 26 – Jun 30, 2017
Central Bankers in Europe, UK and Canada all expressed optimism about their respective economies, pushing government yields higher last week. Oil was higher, snapping a 5-week losing streak, but equity markets generally struggled dragged down by a selloff in technology stocks. Despite lower stock and bond markets, credit finished the month on a positive note with the Barclays Global Credit Index inching ahead to posit its best month of 2017.
Highlights from the week in Corporate Credit: Jun 19 – Jun 23, 2017
Spreads of Canadian credit continued to tighten this week, driven by strong secondary trading in financials and banks on the back of preliminary bail-in rules released last Friday. American credit was subdued as a light week for economic data and downward revisions for inflation expectations placed a cooler on credit. The Dodd-Frank Act Stress Test (DFAST) results were largely in line, giving banks the likelihood to raise shareholder payouts.
Highlights from the week in Corporate Credit: Jun 12 – Jun 16, 2017
Central Bank policy and inflation were in focus last week as the US Federal Reserve hiked rates for the third time since December. Here in Canada the tone was somewhat more upbeat. Bank of Canada Governor Poloz and Senior Deputy Wilkins delivered hawkish speeches confirming that the Bank of Canada has taken a more optimistic view of the economy.
Highlights from the week in Corporate Credit: Jun 5 – Jun 9, 2017
A surprise increase in employment mixed with a light week of domestic issuance contributed to an improved tone in Canadian credit last week, specifically in higher quality utility and infrastructure issuers. Credit was also better in the US as investors quickly moved past the testimony of FBI director, James Comey, to focus on expectations of a dovish hike from the FOMC next week.
Highlights from the week in Corporate Credit: May 29 – Jun 2, 2017
Despite the US withdrawal from the Paris Climate Accord and a surprisingly soft May employment report, global equity and credit markets managed to finish the week modestly positive. Canada continues to wade through a glut of May issuance and credit negative headlines from a number of institutions.
Highlights from the week in Corporate Credit: May 22 – May 26, 2017
Risk markets held a steadier tone last week with Trump’s Middle East trip providing some relief from ongoing White House revelations. While credit indices were generally flat, headlines continue to impact individual names and sectors both positively and negatively.
Highlights from the week in Corporate Credit: May 15 – May 19, 2017
Global credit markets experienced a wobble last week following ongoing revelations President Trump may have attempted to influence the FBI investigation into Russian collusion. After an multi-week period of relative calm, Wednesday saw enough of a risk selloff to prompt some analysts to suggest it was time to “sell in May” and spend the summer months on the sidelines.
Highlights from the week in Corporate Credit: May 8 – May 12, 2017
Canadian credit took a step back this week as the Moodys downgrade of Canadian banks shifted investors’ focus to the frailty of the Canadian macro environment. Additionally, investors have started to take note of companies slipping from Investment grade to high yield, specifically Sobeys ($EMPA) and Home Capital Group ($HCG).
Highlights from the week in Corporate Credit: May 1 – May 5, 2017
Risk assets finished off a volatile week in the black due to a Friday rally spurred by the resurgence in oil, decent US employment metrics, and confidence that centrist candidate, Emmanuel Macron, would defeat Marine Le Pen in the French presidential election over the weekend.
Highlights from the week in Corporate Credit: Apr 24 – Apr 28, 2017
Risk assets started off the week on a strong note as investors cheered the results of the first round of the French elections, which saw the moderate Macron go through to the second round along with right-wing candidate Le Pen. French bank spreads were significantly tighter as the market discounted the likelihood of a French referendum on Europe. Throughout the week, a mix of strong earnings and White House talk of a 15% corporate tax rate kept markets higher.
Highlights from the week in Corporate Credit: Apr 17 – Apr 21, 2017
Positive earnings from US banks weighed against heightened geopolitical tensions to produce a stalemate for global credit markets last week. Canadian credit continues to outperform as has been the theme all year. European credit news was dominated by the French elections – we saw short-covering late last week pushing spreads tighter.
Highlights from the week in Corporate Credit: Apr 10 – Apr 13, 2017
The holiday-shortened week contained plenty of market moving news as geo-political tensions continue to grow, pushing down global yields. The progressing threat of North Korea’s nuclear program prompted a flight to safer assets, with Canadian credit outperforming other regions.
Highlights from the week in Corporate Credit: Apr 3 – Apr 7, 2017
Credit spreads were broadly unchanged this week despite an unexpectedly poor U.S. jobs report and heightened geo-political tension in Syria. President Trump’s decision to quietly launch a missile attack on a Syrian air base Thursday prompted a flight to safety early Friday morning.
Highlights from the week in Corporate Credit: Mar 27 – Mar 31, 2017
Credit markets finished off the strong quarter on a good note as credit spreads retraced the widening experienced last week. Notably, there was a strong secondary bid for BBB rated credits across the curve, solidifying the constructive tone in the bond market.
Highlights from the week in Corporate Credit: Mar 20 – Mar 24, 2017
Markets struck a bearish tone throughout the week as issues related to the passing of the Republican health care bill created uncertainty over President Trump’s ability to deliver on his pro-growth campaign promises. Compared to the weakness in the equity markets, domestic credit was muted with weakness concentrated in the financial, auto and REIT sectors.
Highlights from the week in Corporate Credit: Mar 13 – Mar 17, 2017
Market sentiment shifted to a risk-on tone as the well-advertised Fed hike turned out to be more dovish than expected. The right pace of future hikes put the risk markets in a positive mood, which helped tighten credit spreads.
Highlights from the week in Corporate Credit: Mar 6 – Mar 10, 2017
US credit was under moderate pressure this week as high yield indices are currently on their weakest run since last November. Lower oil prices and a heavy new issue calendar are cited as the primary drivers. Investment Grade markets were similarly lower though outperformed high yield overall.
Highlights from the week in Corporate Credit: Feb 27 – Mar 3, 2017
President Trump’s speech to congress on Tuesday was enough to drive credit spreads tighter this week as investors were encouraged by an upbeat and conciliatory tone. Later in the week attention turned to the Fed Funds rate, where a series of speeches and statements by Fed members actively promoted a March rate hike.
Highlights from the week in Corporate Credit: Feb 21 – Feb 24, 2017
Most sectors were tighter again this week amid continued solid demand, robust earnings, balanced trading flows, and a decreasing supply of new issues. Investment grade bond sales fell for the third consecutive week, slumping to the lowest weekly total of the year.
Highlights from the week in Corporate Credit: Feb 13 – Feb 17, 2017
The testimony by Fed Chair Yellen last week did not materially change expectations for credit markets as they continued to advance alongside global equities. The main cloud on the horizon (apart from Trump-related uncertainty) continues to be the French political situation.
Highlights from the week in Corporate Credit: Feb 6 – Feb 10, 2017
A steady week for commodities and treasury yields saw global stocks reach new highs. France was in the spotlight last week as political headlines suggest a hotly contested presidential race this year.
Highlights from the week in Corporate Credit: Jan 30 – Feb 3, 2017
Despite generally flat risk markets, it was possible to make money in credit last week. Plenty of headlines including a Fairfax bond tender and General Motors upgrade provided opportunities.
Highlights from the week in Corporate Credit: Jan 23 – Jan 27, 2017
Stable earnings, moderating supply, and the Dow reaching 20,000 were enough to send global credit markets tighter for the week. Despite the milestone in stocks, the outlook remains somewhat cautious as Trump’s early enactments maintain a distinctly protectionist and populist tone.
Highlights from the week in Corporate Credit: Jan 16 – Jan 20, 2017
Investors remained cautious ahead of the inauguration of a new US president, but also as events in Europe continued to swing sentiment. US credit continues to be hampered by the wall of supply (mostly financials) and languishing equity markets. Canadian credit continues to outperform with new issues well-subscribed and trading tighter.
Highlights from the week in Corporate Credit: Jan 9 – Jan 13, 2017
The pace of activity picked up mid-week with heavy issuance on both sides of the border and positive earnings from American financials. While the macro market continues to deal with the implications of a new government in the US, credit spreads (ex-financials) continue to feel relatively strong.
Highlights from the week in Corporate Credit: Jan 3 – Jan 6, 2017
New Issues started off strong in 2017 as companies, lead mostly by financial issuers, introduced approximately USD $50 billion of debt within the first couple days of the year. The surprise amount proved hard to digest considering USD $90 billion of new issues are expected this month.
Highlights from the week in Corporate Credit: Dec 23 – 30, 2016
Credit spreads were relatively unchanged over the holidays as light trading volume and light issuance spurred little demand. Treasury yields moved slightly lower to end the year as investors took profits and moved to safe assets to start 2017. Investment grade credit, high yield, and preferred shares all finished the year with impressive returns.
Looking forward to 2017, American credit is in a good position to outperform on the back of a new president and strong economic data. In Europe, there are many potential developments early in 2017 that will challenge global bond spreads including the potential for the enactment of Article 50 and the fragile state of Italian Banks. Canada’s continuous disappointing low growth will also keep things interesting domestically while stable oil prices should be supportive for energy sector spreads.
Highlights from the week in Corporate Credit: Dec 12 – Dec 16, 2016
Despite delivering a heavily telegraphed 25bp rate hike on Wednesday, Fed governors still managed to surprise markets by pointing to a more aggressive path for rates in 2017. Treasury yields continued to move higher, with the yield on some securities now having doubled since the summer lows. Prices of ten-year Treasuries have fallen 8.5% in just 9 weeks and now look set to deliver the worst annual returns since 2013.
Highlights from the week in Corporate Credit: Dec 5 – Dec 9, 2016
The melt-up in stocks this week had a positive effect on credit markets as things begin to quiet down for the holiday break.
Highlights from the week in Corporate Credit: Nov 28- Dec 2, 2016
Canada and US credit continues to perform well. However, sector and curve performance are mixed. Non-financials are leading the charge while US financials have been held back by increased supply. 10-year credit is notably underperforming while 30-year is performing well, as pension and insurance investors take advantage of higher all-in yields. Energy sector spreads were tighter this week following the OPEC decision on Wednesday to cut global oil production by 3.5% which sent crude prices back above $50/bbl.
Highlights from the week in Corporate Credit: Nov 21- Nov 25, 2016
A quiet week given the US Thanksgiving holiday on Thursday. Credit markets have diverged somewhat since the US election, with US feeling moderately better, Europe weaker, while Canada has enjoyed a particularly strong month. Interest rate markets were relatively subdued, and the calm was a welcome relief from what has been a difficult month for government bond traders.
Highlights from the week in Corporate Credit: Nov 14- Nov 18, 2016
Interest rates continue to push higher this week with the US 10 year yield rising another 15bp to a 12 month high. The TMX Canadian Bond Universe index has now given up over 50% of its year-to-date gains in just two weeks and highlights the benefit of diversifying your fixed income allocation away from rate-sensitive strategies.
Highlights from the week in Corporate Credit: Nov 7 – Nov 10, 2016
Away from the equity rally which has caught most of the media attention last week, the big story around the unexpected Trump victory has been the sharp moves higher in global interest rates. This volatility represents some of the largest single day moves in the past five years, and in one week has unwound much of the bond gains of the year. Credit has been reasonably orderly, at least on a spread basis, and in fact, many sectors benefitted from higher all-in yields and anticipation of higher US growth.
Highlights from the week in Corporate Credit: Oct 31 – Nov 4, 2016
Pre-occupation with a suddenly tightening Presidential race dictated market tone for the first week of November
Highlights from the week in Corporate Credit: Oct 24 – Oct 28, 2016
Earnings, politics and interest rates were firmly in the spotlight this week, contributing to a mixed week for credit markets.
Highlights from the week in Corporate Credit: Oct 17 – Oct 21, 2016
A positive week for most asset classes, with bonds and stocks finishing the week higher. Gains in credit were modest but extended a three-month trend of spread tightening.
Highlights from the week in Corporate Credit: Oct 10 – Oct 14, 2016
Interest rates continue to be the main story, with 30-year treasury yields now 25bp higher over the past two weeks up to a four-month high as part of a broad-based selloff globally. Away from rates, it was a mixed week for risk markets overall, and for the most part investment grade credit spreads continue to outperform.
Highlights from the week in Corporate Credit: Oct 3 – Oct 7, 2016
In a week of falling bonds and stocks, credit was a notable outperformer with investors globally electing to sell government debt to buy corporate paper. The move in bond yields was precipitated by a report out of Europe that the ECB was considering plans to taper their bond-purchase program sometime in 2017.
Highlights from the week in Corporate Credit: Sept 26 – Sept 30, 2016
European bank debt generally was wider last week in sympathy with Deutsche, while US credit was mixed and Canada continues to outperform.
Highlights from the week in Corporate Credit: Sept 19 – Sept 23, 2016
Central Banks were at the forefront of investor thoughts last week, with both the Bank of Japan and US Federal Reserve meeting to discuss rate policy.
Highlights from the week in Corporate Credit: Sept 12 – Sept 16, 2016
Investment Grade Credit had its share of challenges this week with continued heavy issuance against a backdrop of falling equity and bond markets globally. For the most part credit volatility remains relatively low and trading is orderly compared to what is happening in other markets.
Highlights from the week in Corporate Credit: Sept 5 – Sept 9, 2016
Are we on the verge of another Taper Tantrum? Stock and bond markets appeared to being contemplating that possibility as both sold off sharply Thursday and Friday following a status-quo pronouncement from the European Central Bank early Thursday.
Highlights from the week in Corporate Credit: Aug 29 – Sept 2, 2016
Typical for late summer it was a fairly subdued week in credit markets punctuated by the US employment report on Friday, which came in about 30k below expectations.
Highlights from the week in Corporate Credit: Aug 22 – 26, 2016
Janet Yellen’s speech on Friday was seen as modestly hawkish as she highlighted the solid growth of the American economy and reiterated the Fed’s intention to further raise rates. Subsequent comments by Fed Vice-Chair Stanley Fischer left little doubt that a September hike remains on the table subject to economic data releases between now and then.
Highlights from the week in Corporate Credit: Aug 15-19, 2016
As we enter the final weeks of summer, North American corporate bond markets quieted as new issue activity and secondary trade volume fell considerably from last week. The FOMC released the July Fed meeting minutes showing a degree of disagreement among committee members regarding the appropriate path of US interest rates. Investors read the minutes with a risk-on tone and we saw markets continue to rally, helped in part by the ongoing fall in the US dollar (which reversed somewhat on Friday).
Highlights from the week in Corporate Credit: Aug 8-12, 2016
North American corporate bond markets continued to be unseasonably active last week with high levels of new issue activity in both Canada and the US. In terms of corporate bond issuance in the US, we look set to reach double the average volume for August of the past 3 years. Issuers are keen to take advantage of the lowest all-in yields of the year, and for the time being investors are welcoming with open arms. Pricing concessions have notably compressed, and it’s not unusual to see new bonds price at or inside secondary spreads.
Highlights from the week in Corporate Credit: Aug 2-5, 2016
August certainly began with a bang not a whimper as the US had its busiest issuance week since May, and fifth busiest week of 2016. Microsoft was largely responsible, successfully launching nearly $20 billion of new bonds on Monday August 1st while most Canadians were still sipping Corona’s at the cottage. Interestingly we found some better bargains to be had among this week’s crop, with the combination of heavy volume and softer tone (at least earlier in the week) led to healthier pricing concessions than we’ve seen in a while.
Highlights from the week in Corporate Credit: Jul 25-29, 2016
A modest pullback in global credit markets last week rounded out what nevertheless remained a positive month of July. The fall in oil prices back towards $40 weighed heavily on energy names; but credit spreads continue to remain tighter than when oil was last at $40 in April and we are cautious on the sector overall. US new issue market remained busy, however concessions have shrunk to virtually nothing which combined with the softer market tone meant after-market performance was limited for most deals. The Canadian new issue market was very quiet this week.
The US Federal Reserve unsurprisingly left rates on hold again in July. While the statement released on Wednesday left the door open for a September hike, market participants remain skeptical that we will see a rate hike in 2016. Government yields across the globe rallied last week, and as a result finished the month generically flat after selling off sharply mid-month.
Finally the results of European Bank stress tests were released late on Friday night. While there were some obvious (and expected) shortfalls, most notably Italian bank Monte di Paschi, overall the results were better than expected and should give markets some comfort that bank balance sheets continue to improve, even as earnings are weighed down by restructuring costs.
Highlights from the week in Corporate Credit: Jul 18-22, 2016
Credit continued to perform this week as stocks rose moderately and government yields were broadly stable. European markets led the way, with bank spreads playing catch-up to the bounce in corporates. European bank spreads remain wider than pre-Brexit while corporate and US bank spreads have broadly recovered to year-to-date tights. Energy sector spreads lagged this week as oil continues to trade below $50.
New issue supply held steady, with US banks active this week following earnings releases. Canadian supply looks on pace for a July record. Secondary trade volumes have been robust, and higher than one would expect for late July. Overall tone continues to look good, despite some signs of rally fatigue by week’s end.
Highlights from the week in Corporate Credit: Jul 11-15, 2016
Government yields globally reversed the course of the past few weeks and started to move higher last week, with 10 year rates up 15 basis points in Canada (to 1.10%), 24 basis points in the US (1.59%), and 19 basis points in Germany (0.00%). Equity markets saw new highs, and credit markets rallied accordingly as higher rates made all-in corporate bond yields more attractive. Q2 earnings season has started, with the initial results from financial benchmarks of JP Morgan, Citigroup, and Wells Fargo all showing modest improvements.
New issue markets were busy, and despite deals typically priced significantly tighter than initial guidance most saw decent follow-on buying. Month-to-date issuance volumes remain below expectations, suggesting we may experience higher levels of supply in back end of July.
Highlights from the week in Corporate Credit: Jul 4-8, 2016
Despite a holiday shortened week with thin volumes, there were plenty of market moving events that impacted the credit markets over the past few days:
- – Short sale restrictions/steep equity declines on certain Italian banks on concerns over non-performing loans,
- – UK property funds restricting redemptions
- – FBI not recommending criminal charges against Hillary Clinton,
- – FED policy meeting minutes from June expressed concern about job growth and the potential threat from a “Leave” vote,
- – US treasuries continued on their path towards lower yields, with the 10yr hitting a low of 1.319% (a level not seen in over 50 years!)
- – Equity markets were strong with many indices recovering all of their losses from the June 23rd Brexit vote.
- – Nonfarm Payrolls for June were well above expectations at a gain of 287k (is the September rate rise back on the table?)
Credit markets were generally better this week, with much of the strength coming from non-European financials and mid-rated US & CAN corporates. In Europe, financials recovered much of the early week losses although they are still net down on the week. New issues were very active in the middle of the week, with many issuers aggressively looking to take advantage of lower all-in yields and a healthy market appetite for product.
Highlights from the week in Corporate Credit: Jun 27-30, 2016
June ended on a positive note after a volatile month. While UK politicians begin a game of cat-and-mouse with the EU, central banks chose rhetoric over action, to good effect. Bank of England governor Mark Carney suggested a rate cut to come at some point this summer, while unnamed ECB sources described an expanded bond-buying program to counteract Brexit related volatility. With Britain clearly playing a longer term game rather than triggering Article 50 exit provisions immediately, the market decided there was no reason to panic just yet, and we saw a widespread short-covering rally. June finished lower overall, but with positive momentum, which continued on the Canada Day Friday in the US and Europe.
The other conclusion markets made from this week is that rates are headed lower. US treasuries finished their best month since January 2015; 30 year notes up 8% and yields falling to 2.28%. In terms of yield, treasuries are testing all-time lows, and a sustained break below 1.38% in 10y or 2.22% in 30 years will take us into uncharted territory. The prospect of lower yields for longer is clearly contributing to the equity rally, and as we saw both stocks and bonds rally this week, it is reasonable to expect that, at some point, the reverse will occur.
With major event risk out of the way and a July rate hike seemingly off the table, there does look to be some clear runway for a credit rally through the summer. However liquidity will inevitably be thin, and political headlines out of the US and UK will only increase. In Europe, recapitalization situations around Italian banks and Deutsche Bank will continue. We look to position ourselves constructively, but cautiously.
Highlights from the week in Corporate Credit: Jun 20-24, 2016
It goes without saying what the top story of the week was. Britain’s unexpected decision to exit Europe caught markets off guard and more than reversed what had been an otherwise positive week for global credit. It’s too soon to predict the long term ramifications – negotiations can’t even commence until Britain identifies a new leader after Cameron’s resignation – however we would remind investors that Investment Grade credit should prove a more robust strategy than most. UK banking, construction and travel industries were hit the hardest, but all sectors and regions were wider/lower on a tumultuous Friday, including North America. Trade volumes were muted, which suggests credit investors are content to watch and wait for more details. We do think that until we know who is favoured to be the British Prime Minister, what their plan is for renegotiating European trade agreements, and how Europe reacts to those proposals, we are in for a summer of ongoing market volatility. We intend to selectively add risk in this weakness, but will not be in an immediate rush.
Canada should prove a relative safe haven through the turmoil, though is not immune to a global selloff. The drop in oil back below $50, if sustained, will negatively impact what had been a productive first half of the year for Canadian credit. In rates news, futures markets are now pricing no US rate increases in 2016, and actually suggest a chance of a rate cut (recall in December the Fed predicted 4 rate hikes in 2016 – and we have yet to have even one). Not surprisingly, gold names like Barrick were higher/tighter for the week.
Highlights from the week in Corporate Credit: Jun 13 -17, 2016
The overwhelming driver of market tone last week was developments out of Britain ahead of Thursday’s EU referendum. Sentiment deteriorated throughout the week as the Exit side has been steadily gaining momentum, in a campaign that has become notably more mean-spirited and vitriolic. The fatal shooting on Thursday of pro-Remain MP Jo Cox may prove to be a turning point, as the conversation over the weekend seemed to swing sharply away from anger towards empathy. As we write markets are rallying on expectation of a remain victory. Despite the swing in betting odds we think the outcome is still too close to call, and an exit victory would be unequivocally bad for risk assets in the short term. However the world will not end and negotiations for Britain’s exit will be long and protracted. We will be watchful for buying opportunities on any precipitous fall in our markets.
The Federal Reserve meeting came and went last week without much fanfare. US Interest rates were left unchanged as expected, and we’ll do the whole thing again in July and September. Overall it was a fairly quiet week in credit, with no new issues in Canada and WestJet’s inaugural USD deal the only issuer of note in the US. Despite a lower week for oil Canada remains a relative safe haven for credit.
Highlights from the week in Corporate Credit: Jun 6 -10, 2016
Another schizophrenic week for risk markets as we head towards the FOMC rate decision on Wednesday and Brexit vote next week. Friday was the weakest day which reflects a lack of conviction heading into a weekend (when new opinion polls out of the UK might serve to alter the risk landscape). Interest rates globally reached extreme levels, with 10 year bund yields on the verge of going negative (Friday’s intraday low was 0.01%) and US treasuries reaching a 3-year low at 1.63%. Low rates would appear to be the norm for the time being; however experience tells us the lower we go the harder we will snap back when sentiment inevitably changes. As Bill Gross suggested on Thursday, “this is a supernova that will explode one day”.
Despite storm clouds on the fundamental side there are technical reasons to remain optimistic about credit in the near term. First, the supply calendar seems to be easing up after significant volumes of new issues in the past few weeks. Second, the ECB did commence buying of corporate bonds this week. European credit felt well bid and US credit was similarly supported. We believe there is a lot of cautious positioning around Brexit, and although there clearly remains risk to the downside if Britain votes to leave, there is also increasing potential for a “melt-up” in stocks, rates, and credit if Britain votes to stay.
Highlights from the week in Corporate Credit: May 30 – Jun 3, 2016
Just as risk markets seemed to be coming to terms with the idea of a summer rate hike, the US employment report on Friday threw a significant wrench in the works. The lowest gain in (seasonally adjusted) non-farm payroll figures since 2010 sent the dollar lower, treasuries higher, and left risk markets unsure what to do next. Are stock markets happy that rates may not go up anytime soon, or unhappy that US economic growth may be stalling? We’d make two observations which we think are pertinent, if inconclusive.
First, the seasonal adjustment in the May number is significant. On an adjusted basis the US added only 38 thousand jobs, but on an unadjusted basis there was an increase of 651 thousand jobs. This merely highlights the amount of noise in the process, and that investors do better to consider trends rather than rely too heavily on any one number. Our second observation is the market is quick to conclude that the Fed will not hike in June as a result of this employment report (Fed futures and options markets priced in only a 3% chance of a June hike post-number). It seems intuitively dangerous to say with certainty what conclusion a group of economists will arrive at in a closed-door session. That is not to say the Fed will hike, but the risks of a negative reaction to a surprise hike are suddenly looming large in a way they were not just a week ago.
Beware the Downside of Dividend Income
The Wall Street Journal recently showed a chart comparing the forward earnings yield of the S&P 500 to that of the 10-year U.S. Treasury yield over the past 30 years. Around 2002-2003, the two yields were almost identical at 5%; today, the proxy yield for stocks is three times that of U.S. 10-year treasuries suggesting, at least by this valuation metric, that stocks are currently cheaper than bonds.
It’s precisely this argument that has financial advisors recommending a steady diet of dividend-paying stocks for all but their most risk-averse clients ignoring one of the most fundamental of asset allocation principles: a reasonable mix of stocks, bonds, and cash. Dividends, after all, tend to grow from year-to-year — think, the S&P 500 Dividend Aristocrats, those special companies who’ve increased ordinary dividends for at least the last 25 consecutive years, or the Canadian Dividend Aristocrats who’ve done so over the past five — protecting one’s capital from the ravages of inflation, while bonds don’t, instead paying a fixed rate of interest until maturity.
Highlights from the week in Corporate Credit: May 23-27th, 2016
The last full week of May was a strong one for global risk markets including credit. A number of factors combined to drive corporate bond spreads tighter in the US and Europe. The market grew more comfortable with the idea of a June or July rate hike in the US, but continues to presume interest rates will not move materially higher over the medium term. This gives corporate bond buyers appetite to add risk, and fund flow data suggests new money continues to move into investment grade credit even as other sectors see net outflows. More positive news out of Europe, as Greece was able to negotiate additional funds from Europe this week which should prevent a July default, and Brexit polls continue to point to Britain remaining in the EU. The one market that struggled to perform this week was Canadian credit, a technical result of outperforming global markets earlier in the month, increased new issue supply, and mixed bank earnings.
The supply calendar was heavy again this week, and May 2016 looks set to finish in the top 3 months of all-time in terms of US corporate bond issuance. We expect that supply to continue in June, which leads to increased secondary turnover and a profitable environment for bond traders. The US employment report next Friday, the Fed meeting on June 15th, and the Brexit vote on June 23rd will be the key directional catalysts for the coming month before we head into the slower summer period.
Fixed Income Investing in a Zero Interest Rate World
Canadian investors are turning their backs on traditional fixed income investments as a core component of their portfolios — should advisors be concerned? Let’s face it, with the Canadian 5-year government bond yielding just 0.8% or less than your annual management fee, the excitement generated from both advisor and client is negligible. And with Canadian core inflation currently averaging above 2%, investing in bonds virtually guarantees an erosion of your client’s capital.
Highlights from the week in Corporate Credit: May 16-20th, 2016
A mixed week for risk markets which was punctuated by the release of Fed minutes from the April meeting on Wednesday. Those minutes suggested the Fed was pre-disposed to a 25 basis point hike in June. That came as a shock to rates traders, who were pricing in only a 4% chance of a June hike. Treasury markets sold off sharply, with the 5-year yield rising by as much as 11bp in the hour after the release. Despite higher rates on the week, stocks managed to remain in positive territory. Credit was mixed, with indices wider overall even though bank spreads (outside of Canada) benefitted from expectations of higher rates. European Credit benefitted from polls suggesting the “Remain” side is gaining a small but significant lead in the Brexit vote. New issue activity continues to be robust, with the $20 billion deal for Dell generating over $80 billion of demand. After breaking up to 25bp tighter, the deal struggled to hold gains by week’s end.
Highlights from the week in Corporate Credit: May 9-13th, 2016
A pretty lethargic week for credit overall. Almost exactly three months after risk markets bottomed out in February, the rally is feeling tired. Stocks and bonds are trading with a limited amount of conviction, which normally precedes a change of direction. We are treading with caution.
Despite the lack of direction it was a busy week for corporate bond issuance. The US had one of its busiest weeks of the year with over $60 billion of new supply. As is typically in a late rally stage, the after-market performance of new issues was mixed, with issuers trying to squeeze out every last basis point of yield. A few underperforming deals are normally necessary to see concessions widen – it pays to be selective!
Lots of discussion around the longer term impact of ECB buying of European corporate debt, and overall that market was an underperformer this week. Issuers and investors are concerned that ECB buying will limit the amount of bonds trading in the market, which could suppress market liquidity and ultimately reduce the number of non-central bank buyers willing to participate. There is a risk that the purchase program has a negative effect on issuing spreads.
Highlights from the week in Corporate Credit: May 2-6th, 2016
May began with a reversal of March and April sentiment as equity and credit markets sold off amid falling oil prices and poor economic data out of Europe and the US. Global interest rates fell for the second straight week. US bond yields are back near recent lows as the market continues to discount the likelihood of additional rate hikes in 2016. However we did see the market shrug off a poor employment report in the US on Friday to finish modestly higher across most sectors, which may set the table for a better week ahead.
Sentiment in Canadian credit remained positive this week, as a lack of new issue supply and rotation out of equities maintained a supportive technical environment for corporate bonds. However the wildfire tragedy in Alberta has cast negative tone across the oil & gas and insurance sectors. Intact Financial Insurance spreads widened 15-20bp, while a number of investment grade energy names were out 20-30bp.
New issue activity in the US was brisk this week, and supply is expected to be high for the balance of the month. This will create trading opportunities in our strategies; even as it puts pressure on overall spread markets.
Highlights from the week in Corporate Credit: April 25-29, 2016
A more subdued week for international credit as earnings releases and central bank announcements kept corporate bond markets more on the sideline. As expected, the US Federal Reserve left interest rates unchanged on Wednesday, but tweaked the language on their press release to leave the door open for a hike at the next meeting in June. On Thursday the Bank of Japan surprised and disappointed the markets by not cutting rates, and we saw global equity markets trade lower into the weekend.
Canadian corporate bonds had a particularly good week fuelled in part by higher oil prices. Canadian markets had lagged the US for most of April, and played catch-up to finish the month. Government bonds sold lower as the yield on the 10-year benchmark rose 18bp this month – another factor which helped credit to rally. A new 5-year deal for international insurer Aviva launched on Wednesday was a blowout, and managed to tighten 35bp in two days. We still think the bond offers value at a 4.2% yield for 5 years on a Baa1 credit.
Overall the tone in credit remains strong, even as stock markets traded lower on the week. However, there are reasons to be cautious heading into May with stock markets showing signs of fatigue and new issue supply expected to increase.
Highlights from the week in Corporate Credit: April 18-22nd, 2016
US bond investors appeared to have an almost insatiable appetite for credit this week, as spreads marched to a 9-month tight. Even as stocks and high yield faltered (somewhat) towards the end of the week in the face of mediocre earnings, investment grade markets continued to perform. Government yields are partly a catalyst, as the Canadian 10-year yield has now retraced all of its YTD gains. Credit spreads can tighten while benchmark yields are rising without reducing overall corporate yields.
The lack of a deal on oil supply out of Doha last weekend briefly pushed prices below $40, but the selloff was short-lived. It’s clear there were investors waiting in the wings to buy risk on any weakness. Energy sector bonds are generally finishing the week 20-40bp tighter. European Bank bonds also performed well this week as odds of a yes vote on the UK referendum were seen falling to around 30% (based on a consortium of UK bookmakers).
Central banks back in focus this week as both the US Federal Reserve and Bank of Japan hold meetings on rate policy. We expect US rates to remain unchanged but the statement will point to the potential for a June hike.
Highlights from the week in Corporate Credit: April 11-15th, 2016
Credit markets marched to fresh tights for the year last week, led by the energy sector as oil prices managed to hold above $40 for the first time since December. Credit was also helped technically by earnings season for the S&P 500, which means many firms are in blackout from bond issuance. New issue volumes were noticeably down from the previous week. European credit underperformed as concerns over the UK referendum continue, however, the week finished on a strong note with most European bank spreads finishing at recent tights.
US economic numbers were generally disappointing for the week, suggesting that yet again the US is unable to sustain the higher pace of growth we saw in the first quarter. However for the time being US markets appear willing to believe a “Goldilocks” scenario where the economy grows at a modest pace: warm enough to avoid recession but cold enough to stem the pace of any rate hikes. We would argue two things regarding this scenario; first that the market is susceptible to economic surprises in either direction which could quickly unsettle the equilibrium, and second that in periods of tepid growth credit markets should outperform equities. Either way, we feel more comfortable participating in the relative safety of the investment grade space than stocks or high yield bonds.
Highlights from the week in Corporate Credit: April 4-8th, 2016
With global stock markets enduring their worst week since mid-February there was a decidedly more cautious tone in global credit to start the month of April. The March FOMC minutes released on Wednesday revealed there was some debate around the pace of rate hikes in the US, and it’s clear not every Fed member shares Janet Yellen’s caution.
Technically credit remains strong with net inflows to both investment-grade and high-yield bond funds continuing into April, and overall credit markets had a modestly positive performance in what felt like a relatively quiet week. Share prices of European banks fell for the third week in a row, and we saw weakness spill over into Tier 1 debt by week’s end. At the other extreme the Canadian preferred market continues to recover well, with recent bank NVCC issues now up close to 6% to start the year.
Highlights from the week in Corporate Credit: March 28th – April 1st, 2016
Coming out of the Easter long weekend, global risk markets were dominated by two events: a speech by Janet Yellen on Tuesday and the US employment report on Friday. We finished with credit mildly better and rates lower, although the tone was decidedly mixed by Friday. The market is seemingly baffled by opposing forces: a “dovish” Fed chair who seems content to move slowly on rates, and evidence of rising wage pressure which suggests inflation is moving higher and more rate action is warranted. We think the not-too-hot-not-too-cold scenario is a better one for credit than equities though with markets having moved a long way in 6 weeks we shall tread more cautiously in the short term.
From a technical point of view, investment-grade credit feels solid. New issue supply slowed considerably in the second half of March while IG and High Yield bonds funds saw decent inflows throughout the month. Most new issues this week performed well, and we saw consistent buying of credit into quarter-end. Next week sees us moving into earnings season, which should set the tone for risk markets in April.
Highlights from the week in Corporate Credit: March 21-24th, 2016
A hawkish tone from various Fed speakers, a stronger US$, and a weakness in oil all contributed to a pause in the ferocious credit rally that had been in place for the past 4 weeks. The new issue calendar was light (essentially non-existent in Canada), but the US$ deals that were launched were generally well over-subscribed and fills were very light. These deals tended to initially trade better but as the week went on there was less follow-on buying and deals drifted back towards original spreads.
The Canadian Federal Budget released on Tuesday was mostly in-line with market expectations. Some comments on “bail-in” securities has the market speculating that we may see these securities as early as mid-2017 – although we do not expect a material impact to existing deposit notes/NVCC securities until further clarification is released in the upcoming months. Notable credit strength in Canada this week was seen in recently issued bank preferreds along with other wide spread BBB names in the 3-5yr maturity bucket as accounts needed to put money to work and issuance has been light.
Highlights from the week in Corporate Credit: March 14-18th, 2016
After the ECB-led euphoria from the week before, last week was somewhat more balanced in terms of sentiment although we continue to grind tighter in credit. The US Federal Reserve offered a much more downbeat assessment of the US economy and suggested they will slow their pace of hikes over the next 2 years. The biggest reaction to that news came in currencies with the US Dollar falling over 1% against major currencies, which was enough to boost US stocks and bonds. Weekly fund flow data suggests cash is still pouring into investment-grade corporate bonds, and despite March Break and the street’s annual distraction of US college basketball, new issue activity remained brisk with over $30 billion priced in North America.
Highlights from the week in Corporate Credit: March 7-11th, 2016
New money continues to pile into credit, but the three-week-old spread rally appeared to be running out of steam early in the week. All that changed on Thursday when the ECB unveiled a broader array of stimulus measures than the market was expecting. Perhaps most significantly was the expansion of the QE bond buying program to include investment-grade corporate debt. Details of what bonds the ECB will buy and in what size remain sketchy, but Thursday and Friday saw a sharp snap tighter in credit markets – primarily in Euro denominated debt but affecting developed market bonds worldwide. In fact, we see this as the single biggest weekly rally in credit since at least October. Interest rates continue to grind higher from the February lows and government bond yields in Canada are now close to unchanged year to date. Brazil’s first US dollar bond deal in 18 months, launched Thursday, is an indicator of the improvement in sentiment in the emerging market space. If oil holds above $35 we expect the ECB-fuelled credit rally can continue through next week.
Highlights from the week in Corporate Credit: February 29th – March 4th, 2016
Credit markets continued to rally strongly across all regions last week. BB and BBB names outperformed with oil prices rallying and government yields rising. A strong US employment report on Friday sent 10 year treasury yields back toward 1.90% from the mid-February lows of 1.65%. Over 50 Billion of new issues priced last week suggesting investment grade demand is deep, although the High Yield market remains virtually shut. While certain names and sectors have now fully recovered year-to-date losses, many remain underwater and aggregate credit spreads remain 10% wider than in December.
Highlights from the week in Corporate Credit: February 22-26th, 2016
Global credit markets continued to recover last week with a strong week in US High Yield. Oil’s push above $30 led to some bottom picking in energy sector bonds, as recent ratings downgrades worked their way through the system. Despite the broad based strength, European banks continue to struggle, in particular UK banks as fears of a “BrExit” dominate the headlines. Canadian bank earnings were mixed, as a new preferred deal from RBC and bond deal from TD weighed on the sector. New issue supply continues to be heavy, with new issue concessions in the US shrinking from the prior week as most deals managed to perform.
Highlights from the week in Corporate Credit: February 16-19th, 2016
Credit markets finally got some relief this week after a difficult start to 2016. European CoCo prices were up as much at 10%, though still remain 5-10% lower on the month, and most sectors were higher. The new issue market re-opened in force, with a number of deals launched in Canada and the US. Canada in particular had its busiest week of the year so far despite the Big 6 banks being currently in earnings blackout. Concessions are healthy, and notwithstanding the overall positive tone a number of names and sectors were under price pressure due to supply. If equity markets can hold we expect more supply and that credit spreads can grind modestly tighter to close out the month.
Highlights from the week in Corporate Credit: February 8-12th, 2016
The week started off with very poor tone. European banks were particularly under pressure, with stocks down as much as 20%, and certain Contingent Convertible (“CoCo”) bonds falling 10% on the week. Credit spread widening was broad based across most sectors, and by Thursday was lining up as the worst week of the year so far, with liquidity becoming particularly challenged. There was some respite on Friday following Deutsche Bank’s announcement of a $5 Billion debt buyback, and a number of bank executives initiating significant personal stock purchases. There were no new issues in the US last week, highlighting how poor the tone was overall. Canadian credit continues to show more resilience, but remains under pressure on very low trade volumes.
Highlights from the week in Corporate Credit: February 1-5th, 2016
European banks were in the credit spotlight this week amid a backdrop of deteriorating risk sentiment overall. Deutsche Bank bonds traded at their widest level in nearly 4 years,after disappointing earnings and an expectation the bank will need to recapitalize itself. Fears of contagion in the banking sector sent spreads wider across Europe and the US. Energy bonds had a relatively stable week as oil prices held above $30. Despite a lack of market stability to start the year, investment grade issuance has remained on pace with 2015, whereas high yield issuance is down by 50%. With unemployment below 5% in the US and evidence of rising wage pressure, Janet Yellen will be treading a fine line this week to when she testifies to Congress and the Senate.
Highlights from the week in Corporate Credit: January 25-29th, 2016
A disappointing week in Investment Grade Credit considering the strong bounce in equities to close the month. Credit was slow to sell off earlier in January, so not unreasonable that there is some catch up. While the US Federal Reserve may have disappointed the market on Wednesday by not stating that rate hikes were on pause, the Bank of Japan made up for it on Friday with a surprise rate cut to negative 0.1. Government bonds in the US and Europe rallied, while Canada bonds continued to under perform as the currency strengthens. Despite the bounce in oil prices, we saw energy sector bonds remain near recent lows. If the improved market tone holds, we expect increased bond issuance next week, which may account for some of the spread weakness heading into month end.
Highlights from the week in Corporate Credit: January 18-22nd, 2016
Risk markets finally found some moderate stability in the third week of the year after reaching a low on Wednesday with global equities down as much as 12%. We finished the week with a decidedly more positive tone as Chinese stocks bounced and oil managed to close above $30. Investment Grade Credit markets continue to recoil from equity volatility and new issue activity remains well below normal for this time of year. The Bank of Canada’s decision on Wednesday to keep rates unchanged sent government bonds lower with a flatter rate curve. If Oil and China remain calm this week, attention in the US will turn to corporate earnings.
Highlights from the week in Corporate Credit: January 11-15th, 2016
A second straight week of heavy selling in global equities led to a more severe widening of investment grade credit spreads, particularly on Friday. It continues to feel like credit is being dragged by equity and commodity markets, rather than acting as a leading indicator as it was in the second half of 2015. AB InBev completed the second largest ever bond transaction, raising $46 Billion through a multi-tranche USD deal launched on Wednesday. The deal attracted an all-time record $120 billion of orders and finished the week flat or marginally wider. Canadian banks continue to raise senior money in foreign markets, while focusing on NVCC issuance here in Canada. The TD NVCC preferred launched last week at 5.5% managed to trade up 1.2% despite the Canadian preferred index falling heavily to start the year.
Highlights from the week in Corporate Credit: January 4-8th, 2016
Investment grade credit markets were remarkably well behaved to start the new year, given the pain felt in most asset classes (North American stocks -5%, Oil -11%). Spreads widened modestly amidst good two way flow throughout the week. There is evidence of investors shifting from equities to bonds as ongoing uncertainty around China, commodity prices, and Fed Rate hikes weigh on market sentiment. New issue activity was robust, though limited to Tuesday and Friday when the markets were at their most calm. Canadian banks were active, launching covered bonds in Europe and a new domestic preferred deal from TD.
Highlights from the week in Corporate Credit: December 21-31st, 2015
Following the Fed hike on December 16th credit markets fell into a normal festive season stupor, with low trading volumes and no new issue activity in the past two weeks. Credit spreads were relatively stable and managed to rebound somewhat from the weakness which beset the first half of the month, however most credit indices still finished the month negative for December and for 2015 overall. The final two weeks did see the typical year-end reach for carry, with notable strength in 2-3yr BBB and BB rated credits.
Highlights from the week in Corporate Credit: December 14-18th, 2015
The week began with heightened volatility and unease concerning high levels of fund redemptions, particularly in High Yield. By Wednesday the market had settled somewhat, and the US Federal Reserve ushered in a new era of interest rates with its first move from zero in 7 years. The market initially rallied on the “slow and steady” rhetoric by the Fed, despite expectations of four more rate hikes anticipated in 2016. In that latter half of the week, ongoing concerns over oil (and energy/mining in general) reversed all of the earlier gains, and treasuries were well bid with US equities turning back to negative on the year. Although price action in investment grade credit remains muted compared to high yield, we saw increased selling in many sectors with financials 3-4bps wider on active trading. There were no new issues priced this week (save for some high grade bank issues in Europe), and with many market participants leaving for holidays we anticipate thin trading until the new year. January is typically a strong month for risk assets, as investors return with fresh outlooks and money to be put to work. There is good reason to believe this pattern will repeat in 2016.
High Yield Credit in Crisis: What’s next for corporate bond markets?: December 15, 2015
Junk bonds roared into the headlines this week, with talk of fund liquidations and suspended redemptions triggering a panic selloff on Friday and Monday that rocked global risk markets. Many are wondering if this is a sign of things to come as the Fed looks set to raise rates for the first time in almost a decade on Wednesday.
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Highlights from the week in Corporate Credit: December 7-11th, 2015
Oil prices fell to an 11-year low which triggered a difficult week for risk assets, in particular High Yield bonds which were broadly down 5% in the past 5 days. Friday saw considerable discussion around bond market liquidity after US High Yield mutual fund Third Avenue suspended redemptions. Investment Grade markets had their worst week since September, although spread moves are considerably more subdued (and liquidity more robust) than High Yield. The Canadian Preferred market was notable for two large Bank NVCC deals priced at 5.5% – similar paper was being issued at 3.6% as recently as March – which drove market prices back to YTD lows. TD, BNS and National Bank were all active issuers in US dollars this week. Unless oil prices stabilize the likelihood of a Santa Claus rally is fading fast.
Highlights from the week in Corporate Credit: November 30th – December 4th, 2015
A choppy week for global risk markets with most major equity and bond markets finishing in the red. Disappointment with the latest round of easing announcements from the European Central Bank, combined with a solid employment report out of the US has set the table for higher rates to finish the year. Credit markets were busy and generally positive on the week; we believe heading into 2016 that a period of gradually rising rates and tepid growth in the US is a better environment for credit than equity. Canadian bank capital received a boost with BMO and BNS both launching successful NVCC sub debt deals, and BNS filing to bring a US dollar NVCC deal in the next week – a first for a Canadian bank. Expect another busy week of new issuance next week and then things to slow down into year end.
Highlights from the week in Corporate Credit: November 23-27th, 2015
A predictably subdued week in credit given the US Thanksgiving holiday. Only $3Bn of new supply in US corporate bonds compared to $37Bn the week before, and secondary trading was largely over by mid-day Wednesday. Spreads were broadly unchanged, with themes from this month continuing to play out (metals & mining underperforming, financials outperforming). In Canada, HSBC managed to raise $1Bn in a 3 year deal that priced with a 10bp concession to secondary spreads and was generally well received despite the large size. Activity levels were more normal in Europe with a number of new deals pricing. Volkswagen spreads continue to recover, as much as 50bp tighter on the week in European markets.
Highlights from the week in Corporate Credit: November 16-20th, 2015
Credit Spreads are marginally tighter after a subdued week in the wake of the Paris attacks. Spreads in commodity related sectors (Mining, Oil & Gas) continued to widen this month, while Financial spreads tightened. The Canadian market continues to outperform US & Europe due to a lack of supply. Three new deals in Canada this week were well received, including Choice Properties REIT which saw excellent demand despite zero concession. In the US supply continues at a brisk pace. US Mutual fund and ETF flow data suggest Investment Grade funds continued to see marginal inflows this week, compared to significant outflows for both Equity and High Yield.
Highlights from the week in Corporate Credit: November 9-13th, 2015
Investment Grade spreads closing marginally wider on the week, dragged down by deteriorating equity and high yield markets, and ongoing supply in the US. On balance higher rated corporate bonds remain well bid, with institutional investors reported to be increasing their holdings in recent weeks. New deals continue to be well received, with quality name deals performing on the break. In Canada, a lack of supply has kept spreads near recent tights, though we anticipate more new issue activity in the second half of the month.
Highlights from the week in Corporate Credit: November 2-6th, 2015
Credit markets continued to trade with a positive tone throughout the week despite equities fading after Tuesday. A solid employment report on Friday has pushed the likelihood of a December Fed hike up to 70% according to futures markets, with many pundits suggesting it’s now a virtual certainty. US 5y yields have moved up 45bp in the past 3 weeks driving Treasury prices down 2%. Corporate new issue supply was solid in the US with 43Bn priced. Halliburton’s jumbo deal (A2/A) was long anticipated and well received despite pricing 35bp through initial guidance, reflecting strong demand for investment grade bonds. Canada supply continues to be very light, suggesting the technical rally could continue into next week.
2015 Credit Market Outlook
The defining story for the global bond market in 2014 was interest rates, but not in the way many predicted at the start of the year. 2014 was meant to be about the end of Quantitative Easing in the US, and the shift from an accommodative to a tightening bias by the Federal Reserve, with most analysts forecasting steeper yield curves and 10 year rates to rise from 3% towards 4%. The Fed acted as expected but in the face of deteriorating global growth, lower inflation, and growing anticipation of a quantitative easing program in Europe, rate curves actually flattened and 10 year government yields in Canada and the US ended the year at 18 month lows near 2%.
Read moreLawrence Park Weekly Credit Report Aug 2 – Aug 5 2016