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Nov. 11, 2015, 11:40 AM
- Large U.S. banks reported holding negative $1.4B of investment-grade corporate bonds for the week ended Oct. 28, according to the FRBNY - meaning primary dealers have pledged to sell more bonds then they will buy.
- It's the first time corporate bond inventories have turned negative since the Fed started reporting this paper separately in April 2013, according to Goldman Sachs.
- Those worried about lack of bond market liquidity will no doubt seize on this news as yet another sign of worry. Typically, banks held more than enough inventory, but new capital and leverage rules make it more costly to do. Some lenders have exited parts of the business completely.
- Get used to it, says Goldman's Charles Himmelberg. Low market liquidity is the "new normal" for corporate bonds.
- Source: WSJ
- ETFs: LQD, VCLT, CORP, CSI, CRED, LWC, CLY, QLTA, FCOR, IGS, COBO, CBND, QLTB, IGU
Sep. 10, 2015, 4:12 AM
- Companies raised $28B of investment-grade bonds in U.S. markets yesterday as the corporate-debt market roared back to life after a three-week hiatus that was partly due to worries about China.
- Nineteen companies issued debt, including Gilead Sciences (NASDAQ:GILD) with a $10B deal, home-improvement retailer Lowe’s Cos. (NYSE:LOW) and hotelier Marriott International (NASDAQ:MAR).
- Overall, firms have sold $1.2T worth of new debt in the U.S. this year, including junk-rated paper, putting the market on course to set a record for a fourth consecutive year.
- ETFs: LQD, VCSH, VCIT, VCLT, CORP, CSJ, CIU, CSI, CRED, LWC, CLY, SCPB, ITR, IGHG, QLTA, FCOR, IGS, COBO, SLQD, LQDH, QLTB, CBND, LDRI, IGU, SKOR
Jun. 4, 2015, 11:01 AM
- For all the talk of Russia's economic woes, the corporate debt of that country has far outperformed that of the U.S. this year. Noting that, Deutsche Bank strategists Oleg Melentyev and Daniel Sorid suggest the tide of the U.S. corporate debt boom could be turning.
- Helped by a flood of retail money into investment-grade bond funds, the size of the corporate debt market has risen to $7.8T from $5.4T in 2009, fueling a boom in buybacks and EPS in an otherwise middling economic environment.
- The result is more levered corporate balance sheets (even stripping out oil companies) just at the time when the Fed is getting set to hike interest rates.
- "As the Fed prepares the market for the end of the period of zero short-term rates, we may be approaching a reassessment of just how much leverage is appropriate given the overall market compensation," conclude the duo.
- Source: Bloomberg
- ETFs: LQD, VCIT, VCLT, CORP, CIU, CSI, CRED, LWC, CLY, ITR, IGHG, QLTA, FCOR, IGS, COBO, LQDH, QLTB, CBND, IGU, SKOR
May 4, 2015, 4:46 AM
- U.S. companies have issued a record $39B of bonds in 2015 that mature in more than three decades, more than five times the amount sold in the same period last year, according to data compiled by Bloomberg.
- Oracle joined the fold this past Tuesday, selling $1.25B of securities due in 2055. Another notable is Microsoft, which sold its first 40-year bond in February.
- Treasurers are embracing what may be their last opportunity to lock in cheap long-term funding costs before the Fed raises rates, while investors are snapping up the longer-dated securities because they offer a higher yield over shorter-term debt.
- ETFs: HYG, JNK, LQD, HYLD, HYS, VCSH, SJNK, VCIT, VCLT, CWB, CORP, SJB, CSJ, BSJF, CIU, ANGL, BSJG, HYHG, CRED, LWC, BSJI, HYLS, CLY, SCPB, UJB, ITR, BSCF, BSCH, IGHG, WYDE, XOVR, BSJH, QLTA, THHY, HYZD, QLTC, BSCI, BSCG, SHYG, BSJJ, HYND, HYGH, BSJK, IBCE, FCOR, TYTE, IGS, COBO, BSCK, LQDH, SLQD, QLTB, IBCB, BSCJ, CBND, IBCC, BSCL, IBDB, LDRI, IBDD, IBDF, IGU, BSCM, IBDA, IBCD, IBDC, IBDH, SKOR, BSCO, BSCN, BSJM, IBDK, BSJL, IBDO, IBDN, IBDP, IBDQ, IBDM, IBDJ
Dec. 2, 2014, 5:09 AM
- With a $17B issuance from Medtronic (NYSE:MDT), U.S. corporate bond sales broke an annual record yesterday, pushing offerings for 2014 past the $1.5T mark.
- The surge in sales has been boosted by record-low borrowing costs, prompting companies to lock in on the low rates.
- ETFs: HYG, JNK, LQD, HYLD, HYS, VCSH, SJNK, VCIT, VCLT, CORP, CSJ, SJB, BSJF, CIU, HYHG, BSJE, BSJG, CRED, ANGL, LWC, BSJI, HYLS, SCPB, CLY, WYDE, BSCF, BSCE, ITR, BSCH, UJB, HYZD, XOVR, IGHG, QLTA, THHY, BSCG, BSJH, BSCI, QLTC, SHYG, BSJJ, HYGH, HYND, TYTE, BSJK, IBCE, COBO, IGS, SLQD, BSCK, CBND, FCOR, LQDH, IBCB, LDRI, QLTB, BSCJ, IBCC, BSCM, IBDH, IBDF, BSCL, IBDD, IGU, IBDC, BSCN, IBDA, IBDB, IBCD, BSCO, SKOR, BSJL, BSJM
May 20, 2014, 11:44 AM
- With borrowing costs about the lowest on record, and investors lending first and asking questions later, corporate finance officers are busy taking out loans. "My treasurer tells me always borrow when you can, not when you have to," says Shell CFO Simon Henry. "There are huge liquid pools at whatever tenor we need ... There's more capital out there than we can consume."
- The average yield on corporate debt has fallen 61 basis points this year to 4.4%, nearing last year's pre-bond bear market low of 4.1%.
- “The market is pretty hot,” says George Dessing, treasurer of Dutch business-to-business publisher Wolters Kluwer NV which raised 10-year money this month. “We have a preference for longer maturity and especially right now at these low costs it was a no-brainer.”
- ETFs: LQD, VCSH, VCIT, VCLT, CORP, CSJ, CIU, CFT, SCPB, LWC, ITR, CLY, IBND, PICB, QLTA, IGHG, PFIG, SLQD, IGS, CBND, SUBD, IGU, QLTB
Apr. 22, 2014, 11:55 AM
- Maybe surprising to many, long-dated investment-grade corporate bonds are outperforming junk bonds this year, with total returns already of 7.48% vs. junk at 3.3%. It's a turnaround from 2013, when high-yield returned 7.42% vs. a loss of 1.57% for IG paper.
- It's good news for institutional investors like pension funds and insurers, who have been big buyers of the bonds in recent months.
- Investment-grade corporate debt ETFs: LQD, VCSH, VCIT, VCLT, CORP, CSJ, CIU, CFT, SCPB, LWC, CLY, ITR, QLTA, IGHG, PFIG, SLQD, IGS, CBND, IGU, QLTB
- In other junk bond news, DoubleLine's Bonnie Baha says the firm's core fund has cut its high-yield exposure to 3% from 6%. High prices are the reason, says Baha, noting the average price of 104.5 cents on the dollar. Many issuers can force redemptions at 103 cents, and if they don't get called, in a low-rate environment there's extension risk.
- Baha takes note of the proliferation of short-duration high-yield funds. "It's a fallacy to think that just because it’s short-term that bad things can’t happen."
- High-yield ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, BSJF, SJB, BSJE, BSJG, HYHG, BSJI, ANGL, HYLS, UJB, BSJH, XOVR, THHY, YPRO, SHYG, QLTC, BSJK, HYZD, HYND, BSJJ
Apr. 10, 2014, 10:39 AM
- "The good ole' days are gone," says UBS, cutting its recommendation for U.S. corporate bonds to "small underweight" ahead of what's expected to be the beginning of a rate hike cycle in about a year.
- With spreads already so tight, any further gains from spread tightening will be marginal at best and not enough to make up for rate increases, says the team, which is bearish on both investment-grade and high-yield corporate debt.
- ETFs: HYG, JNK, LQD, HYLD, HYS, VCSH, SJNK, VCIT, VCLT, CORP, PHB, CSJ, CIU, SJB, CFT, HYHG, SCPB, LWC, ANGL, CLY, ITR, QLTA, HYLS, UJB, XOVR, THHY, IGHG, SHYG, QLTC, PFIG, SLQD, HYZD, IGS, HYND, CBND, QLTB, IGU
Apr. 1, 2014, 3:27 PM
- Investment-grade corporate paper returned 2.7% in in Q1 vs. a 1.42% gain for the MSCI World Index of stocks, the first time debt beat equities since Q2 of 2012. This follows stock gains of 27% last year while bonds fell 1.45%, and a near-universal outlook at the start of the year to rotate out of fixed-income and into equity.
- Junk bonds returned 2.86% in Q1.
- Helping, of course, is the decline in benchmark Treasury yields, but corporate balance sheets have improved, with at least some of that related to the rollicking stock market narrowing pension fund deficits.
- ETFs: LQD, VCSH, VCIT, VCLT, CORP, CSJ, CIU, CFT, SCPB, LWC, BSCE, BSCF, CLY, ITR, QLTA, BSCH, BSCG, IGHG, BSCI, PFIG, SLQD, IBCE, IBCB, BSCK, IGS, IBCC, BSCJ, BSCM, CBND, IBDC, IBDA, QLTB, IBCD, IBDB, BSCL, IBDD, IGU
Mar. 7, 2014, 2:14 AM
- General Electric (GE) has taken advantage of continued low rates with a $3B bond sale comprising $2.25B of 30-year notes and $750M in 10-year paper.
- The auction attracted strong demand, mainly due to the not-so-common opportunity to buy debt from the parent company rather than GE Capital. The last time the parent sold bonds was in October 2012.
- GE is rate at AA+ at S&P.
- Meanwhile, following shareholder feedback, GE will end dividend payments to senior management on new stock that has yet to vest.
- ETFs: LQD, VCSH, VCIT, CORP, VCLT, CSJ, CIU, CFT, SCPB, LWC, CLY, ITR, QLTA, IGHG, PFIG, SLQD, ENGN, IGS, CBND, QLTB, IGU
Mar. 3, 2014, 4:32 PM
- Eyeing better growth and sustained low interest rates, Moody's projects the global default rate to drop to 2.2% this year or 61 companies globally, from 2.9% or 66 companies in 2012.
- "Additional factors that support our view of a low default rate in 2014 are the continuous accommodative monetary environment together with ample liquidity, which has and will continue to allow distressed companies to access the capital market and reduce refinancing risk in the near future."
- For perspective, the average default rate since 1983 is 4.7%. It is indeed a golden age for corporate borrowers.
- Related ETFs: LQD, VCSH, VCIT, CORP, VCLT, CSJ, EMCB, CIU, CFT, EMCD, SCPB, LWC, GHYG, CLY, IBND, ITR, CEMB, PICB, QLTA, GLCB, IGHG, SLQD, PFIG, IGS, CBND, IGU, QLTB
Feb. 12, 2014, 4:50 PM
- "The default rate is non-existent," he says, agreeing that fundamentals in high-yield look good. "Instead of a default cycle, we've had a refinance cycle." The issue, however, is valuation. At the end of 2013, the 30-year Treasury yielded about 4%, while BB corporates "unbelievably" yielded just 4.5% - a "remarkably low incremental yield."
- His feelings about overvaluation extend to the investment grade corporate market (LQD) as well.
- Most curious to Gundlach is how universally the long bond is hated at 4%, while junk yielding 4.5% gets so much love.
- Besides Treasurys, Gundlach sees value in emerging market bonds. The risk is in the currency, but this can be eliminated by buying dollar-denominated paper.
- High yield ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, BSJF, SJB, BSJE, HYHG, BSJG, BSJI, ANGL, BSJH, HYLS, XOVR, THHY, UJB, QLTC, SHYG, BSJK, HYZD, BSJJ, HYND
- Investment grade ETFs: LQD, VCSH, VCIT, CORP, VCLT, CSJ, CIU, CFT, SCPB, LWC, CLY, ITR, QLTA, IGHG, PFIG, SLQD, IGS, CBND, IGU, QLTB
- EM bond ETFs: EMB, PCY, ELD, EMLC, EMCB, VWOB, EMCD, ILB, HYEM, EMHY, LEMB, ITIP, EMAG, EBND, GTIP, PFEM, EMSH, SEMF, IEMF, LEMF
Nov. 7, 2013, 1:28 PM
- Open for trade today is the ProShares Investment Grade Interest Rate Hedged ETF (IGHG) whose underlying index tries to achieve a duration of zero by offseting corporate debt holdings with a short position in Treasurys.
- ProShares this summer launched a similarly hedged fund, but one aimed at high yield, the ProShares HighYield Interest Rate Hedged ETF (HYHG).
- IG corporate bond ETFs: LQD, VCSH, VCIT, VCLT, CORP, CSJ, CIU, CFT, SCPB, LWC, CLY, ITR, QLTA, PFIG, IGS, SLQD, CBND, QLTB, IGU
The iShares 10+ Year Credit Bond Fund seeks results that correspond generally to the price and yield performance before fees and expenses of the long-term, investment-grade U.S. corporate and Yankee bond markets as defined by the BofA Merrill Lynch 10+ Year US Corporate & Yankees Index, which includes debt securities issued publicly by U.S. corporations and U.S. dollar-denominated, publicly issued debt of non-U.S. corporations, non-U.S. government debt and supranational debt.
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