Tue, Jul. 5, 3:35 PM
- U.S. corporate bonds represent just 12% of all investment-grade debt outstanding globally, but account for a full 33% of investment-grade yield income, according to BAML's Hans Mikkelsen. A year ago, they represented 23% of all yield income; five years ago, 13%.
- Though yields have fallen sharply this year, rates on 7-10 year notes of high-quality U.S. companies are still 3.14%, positively towering over the 1.36% offered by 10-year Treasurys.
- It's good for businesses which are able to borrow at sweet rates maybe to invest, but more likely it seems, to boost buybacks.
- Possibly lifting the appeal of U.S. IG corporates even more is the ECB's recent start of buying European corporate paper, which should drive those yields even lower. Another boon? The Bank of Japan might move into corporate bonds as its share of the JGB market rises too high.
- ETFs: LQD, CORP, CSI, CRED, QLTA, COBO, QLTB, FCOR, CBND, IGS, IGU, IGIH, WFIG
Mon, Mar. 21, 3:27 PM
- Updating its global asset allocation recommendations, Citi Private Bank moves IG corporate bonds to "very overweight" - the only asset class out of 21 receiving the honor of such a high rating.
- "With U.S. yields near 5% for long maturities, and half the historical average volatility of equities, the sector seems historically attractive as our asset allocation moves higher in capital structure and credit quality," writes Steven Wieting, global chief investment strategist.
- Alongside the boost in IG corporate debt, the team cut exposure to equities to neutral, raised cash to overweight, and boosted Latin American debt as well.
- ETFs: LQD, VCLT, VCIT, CORP, CIU, CSI, CRED, LWC, CLY, ITR, PICB, IBND, QLTA, COBO, FCOR, IGS, CBND, QLTB, IGU, SKOR
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
Sep. 2, 2015, 2:57 PM
- “We’ve seen new issuance evaporate at the moment,” says Roger Bayston, director of fixed income at Franklin Templeton. Globally, investment-grade bond issuance last month was $72.24B, according to Dealogic, down from $97B a year earlier.
- The slowdown is even more dramatic when considering volume YTD of $1.21T is the highest level on record.
- “It’s not that the market is closed, but people continue to look for the right window,” says JPMorgan's Huw Richards.
- On the rise, however, are concessions, or the extra yield borrowers pay to attract lenders. They averages 12 basis points from May-June vs. 4 bps in the same period in 2014.
- ETFs: LQD, CORP, CSI, CRED, PICB, IBND, QLTA, FCOR, IGS, COBO, CBND, QLTB, IGU, SUBD
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
May 1, 2015, 10:56 AM
- Junk bonds have returned a total of 3.8% year-to-date, according to BAML vs. 1.7% for investment-grade and 1.3% for Treasurys. In April, high-yield had a total return of 1.2%, while both investment-grade and Treasury paper posted negative returns.
- As of yesterday, the spread between high-yield and Treasurys was 459 basis points. At the start of the year, it was 504 bps. The spread has likely narrowed even more today as Treasurys tumble in price, but high-yield edges higher. Both JNK and HYG are up 0.1%, while TLT is down 1.3%.
- ETFs: HYG, JNK, LQD, HYLD, CORP, SJB, ANGL, CRED, HYLS, UJB, XOVR, QLTA, QLTC, FCOR, IGS, COBO, QLTB, CBND, IGU
Apr. 7, 2015, 1:09 PM
- With the Fed threatening to take away the punch bowl, American companies have found a friend in the ECB, whose QE has made borrowing across the pond far less expensive than doing it here, writes Lisa Abramowicz.
- Yields on investment-grade corporates in Europe have dipped all the way to 0.99% vs. 2.9% in the U.S., according to BAML. U.S. companies can save money even if they pay for expensive currency hedges. Consequently, roughly 65% of the record €60B of euro-denominated bonds sold in March (a record) came from overseas companies.
- Junk-rated credits are also looking to the Continent, where yields on euro-denominated high-yield bonds of 4.3% are about 220 basis points lower than the States.
- ETFs: HYG, JNK, LQD, HYLD, CORP, SJB, IHY, CRED, ANGL, HYLS, PGHY, UJB, HYXU, PICB, IBND, XOVR, QLTA, QLTC, IJNK, COBO, IGS, FCOR, CBND, QLTB, IGU, SUBD
Mar. 26, 2015, 8:14 AM
- Investment-grade and junk-rated companies combined have sold $438B of new bonds YTD, according to Dealogic, topping the previous record of $384B in 2013. Bond sales related to M&A of $87B are also at a record YTD.
- Corporate treasurers no doubt are pushing out as much debt as possible to take advantage of low rates, but they're finding plenty of willing buyers.
- “I can’t see anything on the radar that’s going to slow things down materially,” says one fixed-income manager.
- ETFs: HYG, JNK, LQD, HYLD, CORP, SJB, CRED, ANGL, HYLS, UJB, XOVR, QLTA, QLTC, COBO, IGS, CBND, FCOR, QLTB, IGU
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
Oct. 9, 2014, 1:31 PM
- The Fidelity Total Bond ETF (Pending:FBND), the Fidelity Limited Term Bond ETF (Pending:FLTB) and the Fidelity Corporate Bond ETF (Pending:FCOR), the first actively managed bond exchange-traded funds from Fidelity Investments, began trading this morning.
- Fidelity's timing could not have been better, with many investors, shaken by Bill Gross's departure from PIMCO, may be searching the market for new investment options.
- “I would say the timing of our launch is fortunate; however, this is part of a really well-thought-out long-term strategy around ETFs,” said Scott E. Couto, president of Fidelity Financial Advisor Solutions.
- Other total market ETFs: AGG, BOND, BND, SCHZ, LAG, SAGG, GBF, IUSB
- Other short term ETFs: BSV, ISTB, MINC
- Other corporate bond ETFs: LQD, CORP, CRED, QLTA, IGS, COBO, CBND, QLTB, IGU
Sep. 23, 2014, 2:37 PM
- Among the changes BlackRock (BLK -0.9%) is urging in a new paper is replacing banks as the primary middlemen in the market and moving transactions to electronic markets. Another: Encouraging companies to issue debt with more standardized terms, thus cutting the complexity of the market.
- Despite years of effort by BlackRock and others to wrest control of corporate debt trading from banks, the top ten dealers still control more than 90% of trading, according to Greenwich Associates. For now, ZIRP is masking many issues, but the price gaps and scant liquidity remain.
- “These reforms would hasten the evolution from today’s outdated market structure to a modernized, ‘fit for purpose’ corporate bond market."
- ETFs: LQD, CORP, CRED, QLTA, COBO, IGS, QLTB, CBND, IGU
Sep. 19, 2014, 3:03 PM
- "This capital largely did not even exist" in the days ahead of the financial crisis," says Deutsche's head of credit strategy Oleg Melentyev. Private-equity funds have raised at least $300B to invest in credit, and are likely buyers in any selloff, he says, taking over a job that used to be performed by the banks.
- Shops like Carlyle Group, Blackstone, and KKR are among those who have diversified beyond their traditional buyout operations in part by boosting their debt investments. Recently public Ares Management (NYSE:ARES) has the most amount of capital to invest in its 17-year history, says the head of its tradable credit group.
- "Our estimate of alternative capital in credit exceeds the total drop in dealer inventories [i.e. banks] since 2007," says the Deutsche team.
- ETFs: HYG, JNK, LQD, HYLD, CORP, SJB, CRED, ANGL, HYLS, UJB, XOVR, QLTA, QLTC, IGS, COBO, QLTB, CBND, IGU
Sep. 3, 2014, 1:07 PM
- Investment-grade bonds (NYSEARCA:LQD) should provide annual returns of just 1-2% for the next seven years, says Morgan Stanley Wealth Management's Jon Mackay, meaning an investor will lose money after accounting for inflation. This compares to the 8.7% average annual return posted for the last three decades.
- What to do? Rotate out of the perceived "safe havens," says Mackay, and move into higher-yielding assets. It's hardly contrarian advice as investors have been plowing money into junk debt, equities, and alternatives like real estate and private-equity for years. High-yield bonds globally are on pace for another big year after returning 142.7% in the previous five years.
- ETFs: LQD, CORP, CRED, QLTA, COBO, IGS, CBND, IGU, QLTB
Jul. 25, 2014, 3:42 PM
- "We think the likelihood of a rise in government bond yields has increased and see this as a key aspect of the near-term macro outlook," says analyst Anders Nielsen as Goldman Sach's Global Opportunity Asset Locator (GOAL) downgrades equities to Neutral over the next 90-day period.
- This is a short-term call, says Nielsen, reminding his team's continuing to be Overweight equities over the next 12 months.
- The outlook for corporate credit is a bit more dour, with that asset class being downgraded to Underweight over both the next 3 and 12 months. Most at risk, says Nielsen, are investment grade credits given that spreads there are the tightest.
- Broad equity ETFs: VV, SCHX, FEX, JKD, EQL, IWL, EEH, ERW, FWDD, SYE
- IG Bond ETFs: LQD, CORP, CRED, QLTA, COBO, IGS, CBND, IGU, QLTB
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