Author: Kathryn Bailey

27 Apr 2018

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of April 19-April 25 were positive, with an inflow of $3.5bn, driven primarily by ETFs, which posted their largest net inflow in over a year. According to data analyzed by Wells Fargo, IG funds have garnered $56.4 billion in net inflows YTD.

According to Bloomberg, $20.95bn in new corporate debt priced during the week. This brings the YTD total to $413.12bn.  Historically, May is typically a robust month for new corporate bond issuance and the general consensus on the street is that issuance will pick up in the month of May as companies exit earnings blackout.

The Bloomberg Barclays US IG Corporate Bond Index closed on Thursday with an OAS of 108, while the 10yr treasury breached the 3.00% threshold this week for the first time since January of 2014.


(Bloomberg) BofA Says Rising Rates Boost Appeal of High-Grade Bonds For Now

  • The highest Treasury yield since 2014 is good news for the investment-grade corporate bond market, bringing back investors who’ve been put off by low payouts previously, Hans Mikkelsen, high-grade bond strategist at Bank of America Merrill Lynch, said in phone interview.
  • “If you look at credit spreads, rates at these levels are positive for the investment-grade market, especially in the back end of the yield curve,” Mikkelsen said. “This market actually has quite a lot of yield-sensitive investors who buy more when rates go up, which makes it different than other asset classes.”
  • These include insurance companies, pension funds, and foreign buyers, which will buy more since the rate rise this time is modest, controlled, and fairly contained, he said. “It would take a much further uptick for them to sell.”
  • On the other hand, If returns deteriorate, “there might be more of a negative feedback loop” for bond funds and ETFs, because those funds would typically buy less, Mikkelsen added. “And if we went to 4% within two weeks, that wouldn’t be good either, as interest-rate volatility and uncertainty matters more to IG investors than the interest rate level itself.”
  • Investment-grade spreads widened last night following the market close Wednesday. Treasury yields have fallen from highs yesterday, with 10-year back below 3%


(Advisor Perspectives) Dan Fuss – Only Two Things Can Stop Rates from Rising


  • As his 60-year tenure attests, Dan Fuss is one of the most respected bond investors. In my interview with Fuss last week, he explained why it would take either a geopolitical crisis or an economic collapse to drive rates lower. Fuss also said investors should exercise caution in bond ETF markets that are exposed to liquidity shocks.
  • According to Fuss, existing deflationary forces in the global economy would not be enough to drive rates lower.
  • This is not the first time Fuss has forecasted higher rates. In October 2017, Fuss advised investors to exercise caution by building reserves, and suggested that they position themselves for an environment of rising interest rates. He also did so in October 2015, March 2015, and October 2013, causing his fund to miss the full benefit of bond rally in 2014. In April 2012 he made a similar, but incorrect, prediction.

(WPO) What Comcast’s $31 Billion Offer for a U.K. TV Company Tells Us About the Cable Giant’s Ambitions


  • Comcast said Wednesday that it’s offering $31 billion to buy the British TV provider Sky, officially starting a bidding war between the U.S. cable giant and 21st Century Fox, which has offered $16.5 billion for the company.
  • But why is a U.K.-based television company such a sought-after piece of property, and what could a deal mean for Comcast’s customers?
  • The answer can be found in Comcast chief executive Brian Roberts’s remarks to investors on an earnings call Wednesday morning.
  • “It’s a unique asset,” Roberts said. “It fits well with the assets we’ve already got. … A benefit is, you’d get new geographies and additional scale that gives you optionality.”
  • In other words, a deal would give Comcast access to a bigger overseas audience and — according to industry analysts — new TV programming.
  • Media and entertainment companies are increasingly consolidating — Time Warner, for example, is seeking to merge with AT&T for $85 billion. And it looks as though Comcast also is seeking additional opportunities in this space
  • But unlike AT&T-Time Warner, which AT&T casts as a make-or-break bet as the telco tries to compete with Google and Facebook with a data-driven ad business, Comcast is emphasizing the optional nature of its offer for Sky. It’s simply a good opportunity and the best use of Comcast’s money right now, Roberts told analysts on the call.
20 Apr 2018

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of April 12-April 18 were negative, posting an outflow of $1.2bn. According to data analyzed by Wells Fargo, IG funds have garnered $53 billion in net inflows YTD, which is less than half the amount of net inflows recorded in the first four months of 2017.

The IG new issue calendar saw its most active week since the week ending March 9th.  U.S. banks led the way as they began to bring new bond deals coincident with earnings reports.  According to Bloomberg, $36.4bn in new corporate debt priced during the week.  This brings the YTD total to $392.17bn, which is down 14% year over year.  2018 issuance will see a significant impact pending regulatory reviews of large M&A deal such as AT&T/Time Warner and Bayer/Monsanto, among others.

The Bloomberg Barclays US IG Corporate Bond Index opened on Friday with an OAS of 106.


(Bloomberg) Dealers Kicking Abbott Debt to Curb Missed Out on Outperformance

  • Abbott Laboratories’ debt has outperformed peers in 2018 following Moody’s upgrade and positive outlook in February.
  • The Abbott Labs’ bonds have outperformed similarly dated BBB tier health-care and pharmaceutical debt by about 90 bps in 2018, including issues from Thermo Fisher, CVS and Mylan, driven by debt pay down and an upgrade by Moody’s in February.
  • Dealers have been net sellers of Abbott debt over the past three months, notably at the front-end of the curve, including the 2.35% bonds due in 2019, 2.9% bonds due in 2021 and 3.75% bonds of 2026.



(WSJ) Morgan Stanley Posts Record Earnings, Revenue


    • Morgan Stanley MS on Wednesday reported record quarterly profits, the last of the big U.S. banks to benefit from a potent cocktail of lower taxes, active markets, lower expenses and economies growing in lockstep.
    • The Wall Street firm’s first-quarter profits of $2.6 billion and revenues of $11.1 billion were both record highs after reflecting accounting adjustments and jettisoned businesses. Morgan Stanley’s traders had their best quarter since 2009, riding a wave of increased volume and volatility that also aided rivals, including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
  • Combined profits at the six largest U.S. banks, which all reported first-quarter results in recent days, rose 24% from a year ago, outpacing an 18% rise in revenues. Meanwhile, the banks’ level of profitability as measured by the return they generate on their equity—a key gauge for shareholders—rose to its highest level in years.


  • The first quarter is typically the strongest of the year for banks. Investors put on new positions, which boost trading results, and companies raise money to fund new projects, which spurs lending and underwriting.


(WSJ, Press Release) Crown Castle Reports First Quarter 2018 Results and Raises Outlook for Full Year 2018


  • “After another quarter of very good financial and operating performance in the first quarter, we remain excited about the opportunities for our business to support growing data demand in the U.S.,” stated Jay Brown, Crown Castle’s Chief Executive Officer.
  • “We continue to see tremendous activity across our unique portfolio of infrastructure assets. In our tower business, we have recently signed comprehensive leasing agreements with several of our largest customers, which we believe signals the beginning of a sustained period of infrastructure investments by our customers.
  • In our fiber business, the volume of small cell bookings in the first quarter was comparable to what we booked during all of 2016, resulting in an increase in our contracted pipeline to more than 30,000 nodes. We also continue to make very good progress on integrating our recent fiber acquisitions.
  • We believe our unique value proposition as a shared communications infrastructure provider will allow us to translate the growing demand for data into growth in cash flows and, thus, deliver on our 7% to 8% annual growth target in dividends per share.”+
  • Crown Castle owns, operates and leases more than 40,000 cell towers and approximately 60,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service – bringing information, ideas and innovations to the people and businesses that need them.



(Bloomberg) Global Yield Surge Defies Skepticism on Inflation’s Momentum


  • Rising inflation expectations in the world’s biggest economy are pushing up U.S. benchmark yields, putting pressure on rates to climb around the world and causing more than a few heads to swivel.
  • Federal Reserve officials may be attempting to tamp down concern of a U.S. price surge, but it hasn’t stopped yields from Tokyo to Frankfurt and New Yorkticking higher. In fact the yield of a $51 trillion Bloomberg Barclays index of global sovereigns and corporate debt is nearing a four-year high of 1.949 percent.


  • Yet even as April’s surge in raw materials drives inflation bets and those higher yields, the moves are relatively gentle. Treasury long-bond rates remain below February highs, and that suggests bond traders are so far taking events in stride.
  • “Actually there’s no overconcern yet in the market of inflation drifting dramatically higher — if you look at long, medium or short Treasuries,” said Joe Lovrics, Citigroup Inc.’s Iberia Markets head in Madrid. “In fact there’s a growing group talking about the U.S. economy actually cooling now.”
  • Although Fed official Loretta Mester mentioned inflation 18 times in a preparedspeech Thursday, she concluded it probably won’t pick up sharply even as unemployment is likely to fall below 4 percent this year and remain there through 2019.
  • In Europe, where the European Central Bank’s unconventional stimulus has been crushing rates since 2015, ECB President Mario Draghi is seen taking longer to lay out its plan to exit that program as protectionism threatens the euro-area outlook, economists said in a Bloomberg survey.
  • While there has been some market excitement this year over the potential return of inflation and a possible bond bear market, a number of other factors having been fueling yield increases, according to Lovrics.
  • “We’ve had an unexpected rally in oil, tax stimulus, strong employment in the U.S. plus Fed remarks about rising inflation, and this kind of feeds on itself,” he said.
27 Mar 2018

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of March 15-March 21 were a positive $167 million, though flows have slowed now for four consecutive weeks. The data analyzed by wells shows that longer duration funds are gathering flows at the expense of shorter duration funds.  This is in contrast to Lipper data, where IG saw a solid inflow of $3.5bn versus the 4-wk Lipper average of +$1.6bn.  HY outflows continue, with Lipper reporting an outflow of $1.17bn taking YTD outflows to nearly $18bn for the HY asset class.

The IG new issue calendar saw $26.875bn price on the week, as Anheuser-Busch InBev led the way with a $10bn print across six tranches. Corporate issuance is down 18% y/y but there are several large M&A related deals waiting in the wings that could narrow this gap substantially in the coming weeks.  It is also likely that the market tone and renewed volatility in stocks and rates are keeping some issuers on the sidelines for the time being.

The Bloomberg Barclays US IG Corporate Bond Index opened on Friday with an OAS of 109, which is widest level yet seen in 2018.


(WSJ) ‘Rolldown’ Shows Why the Bond Market Is an Unfriendly Place to Hide

  • For bond investors, a concept called “rolldown” is like a virtuous form of financial gravity, a force that generates returns without doing much work. A flattening yield curve, however, is threatening the physics that investors rely upon.
  • The signals sent by the Federal Reserve Wednesday suggests the yield curve could flatten further: Its rate increases will raise short-dated yields, but there is still skepticism that rates in the long term will be materially higher.
  • When the yield curve is steep, investors benefit from the yield on a long-term bond “rolling down” the curve. As a 10-year bond over time becomes a nine-year bond, all else being equal, its yield falls and its price rises, producing a gain above the initial yield when the bond is purchased. That offers protection for bond investors in a rising-rate environment, notes TwentyFour Asset Management.
  • The U.S. yield curve still slopes upwards, with 10-year Treasurys yielding 0.57 percentage point more than two-year securities. But the further out you go, the flatter the curve gets. There is now only a 0.07 percentage-point gap between seven- and 10-year Treasury yields, a gap that has more than halved from a year ago. The potential for rolldown gains is small.
  • A similar phenomenon is showing up in U.S. corporate bond markets too, with the gap between short- and long-maturity bonds shrinking in both yield and spread terms. A number of forces are potentially at play here, as with the rise in Libor rates.
  • Higher U.S. Treasury bill issuance is competing for investors’ cash. And the pool of funding for short-dated debt may also have shrunk due to corporate cash repatriation, Citigroup suggests: if dollars can be repatriated and spent, they don’t need to be tied up in bond investments.
  • By contrast, steeper curves in eurozone government and corporate bond markets may make them attractive to investors. The European Central Bank’s negative-rate policy, which it is in no rush to change, is acting as an anchor for yields, reassuring bond investors. Coupled with the cost for foreign investors to hedge dollar-denominated bonds, U.S. bonds lose out despite their higher yields. All of that may lead to tighter U.S. financial conditions.

(Bloomberg) Bayer Hopes to Close $66 Billion Deal With Monsanto in 2Q18


  • Bayer continues to await antitrust clearance from the U.S. Department of Justice to close its proposed $66 billion purchase of Monsanto after having obtained all other necessary approvals. A DOJ decision is likely in 2Q. While Bayer agreed to sell or license about $7 billion worth of assets to BASF to ease antitrust concerns, additional measures may be needed for approval. Though this is more likely than not to be secured, if antitrust issues prevent it, Bayer will owe Monsanto a $2 billion fee.
  • Bayer also has ongoing patent suits against generic-drug makers with respect to Xarelto (with J&J), Beyaz/Safyral, Betaferon/Betaseron, Damoctocog alfa pegol, Finacea, Nexavar and Staxyn. It’s involved in product liability litigation with respect to Yasmin, Mirenac and Xarelto. Other legal issues include environmental and tax matters. 

(Bloomberg) PG&E Has a Plan to Prevent More Deadly Wildfires


  • Five months after wildfires ripped through Northern California’s wine country, PG&E Corp. has developed a plan to lower the risk of another outbreak.
  • PG&E will establish new guidelines for proactively turning off power lines in areas where there’s extreme fire risk — a practice that regulators had asked about after last year’s events. The company will also keep trees and limbs farther away from power lines to meet new standards and expand its practice of disabling some equipment during fire season, according to an emailed statement Thursday.
  • The announcement comes as state investigators probe whether PG&E power lines played a role in causing fires in Napa and Sonoma counties that destroyed thousands of structures and killed at least 40 people. The San Francisco-based company has lost more than a third of its market value amid investor concern that its equipment may have sparked the deadly blazes. No cause has been determined.
27 Mar 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.0 billion and year to date flows stand at -$22.7 billion. New issuance for the week was $3.3 billion and year to date HY is at $53.1 billion, which is -27% over the same period last year. 


(Bloomberg) High Yield Market Highlights


  • Junk bonds have been impervious to tumbling stocks and rising VIX amid threats of potential trade war, as the new issue market priced Cequel Communications, a CCC-credit, in a drive-by offering yesterday.
  • Yields were resilient as they rose by just 0.6% across ratings, while stocks plunged more than 2.5%, the biggest drop in six weeks; VIX rose more than 30%, also the biggest jump in six weeks
  • Investors, though cautious, also seem to shrug off another outflow from retail funds
  • There was no evidence of any panic selloff as yields were on a holding pattern and investors on watch mode
  • Oil was still near a 6-week high and has been rising in 6 of the last 10 sessions
  • BofAML strategist Oleg Melentyev wrote in note earlier in the week that technicals are still constructive, and pressure would build up to put cash to work amid light supply; April would see coupon generation of about $7.4b in cash
  • CCC credits continued to outperform BBs and single-Bs with positive YTD returns of 0.47%, as additional evidence of the strength of junk bond market
  • BBs were the worst, with negative YTD returns of 1.55%, followed by single-Bs negative 0.36%
  • Junk bond market was now stronger qualitatively, with issuers rated B3 and lower declining in numbers; Moody’s notes that issuers rated B3 and lower dropped to 13%, below the long-term average of 15% for the 6th straight month  


  • (CNBC) Fed hikes rates and raises GDP forecast again 
  • Interest rates are going up again, thanks to a well-telegraphed Federal Reserve move Wednesday.
  • Central bankers, led by Jerome Powell in his first meeting as chairman, approved the widely expected quarter-point hike that puts the new benchmark funds rate at a target of 1.5 percent to 1.75 percent. It was the sixth rate hike since the policymaking Federal Open Market Committee began raising rates off near-zero in December 2015.
  • Along with the increase came another upgrade in the Fed’s economic forecast, and a hint that the path of rate hikes could be more aggressive. The market currently expects three hikes for 2018, and that remained the baseline forecast, but at least one more increase was added in the following two years.
  • “The economic outlook has strengthened in recent months,” the committee said in its post-meeting statement, a sentence that had not been in previous releases. The language came even though the committee said earlier in the statement that “economic activity has been rising at a moderate rate,” a seeming downgrade from January’s characterization of a “solid” rate.
  • Fed officials raised their forecast for 2018 GDP growth from 2.5 percent in December to 2.7 percent, and increased the 2019 expectation from 2.1 percent to 2.4 percent.
  • However, growth is likely to cool after, with the 2020 forecast holding at 2 percent and the longer-run measure still at 1.8 percent.
  • Inflation expectations, on which the market has been laser-focused lately, changed little. The 2018 forecast remains just 1.9 percent for both core and headline inflation — core excludes food and energy prices. For 2019, the forecast for core personal consumption expenditures edged higher to 2.1 percent from 2 percent, while headline remained at 2 percent. The committee nudged the 2020 level up from 2 percent to 2.1 percent for both core and headline.
  • The benign inflation expectations are particularly remarkable considering that Fed officials now see unemployment running even lower than before. Currently at 4.1 percent, officials now see the rate for 2018 at 3.8 percent, down from the 3.9 percent December forecast, and 2019 falling all the way to 3.6 percent from the original 3.9 percent outlook. The 2020 forecast also fell, from 4 percent to 3.6 percent.
  • The so-called dot plot, which indicates individual members’ rate expectations, took a hawkish tilt. While a three-hike policy remains the baseline for 2018, the committee pushed 2019 from 2½ to three increases and 2020 from 1½ to two. The funds rate for 2020 is now expected to be 3.4 percent from the initial 3.1 percent, though the longer-run forecast rose just a bit, from 2.8 percent to 2.9 percent.  


  • (Bloomberg) As Commodities Roar, Africa Wants Bigger Slice of Mining Pie
  • The collapse in commodities through 2015 hobbled some of Africa’s biggest resource economies, stunting growth and leaving budgets short. Since then a recovery in prices has sent the continent’s biggest miners soaring, boosted profits and rewarded shareholders with bumper payouts. But a lack of returns to governments is drawing a backlash from Mali in the Sahara to Tanzania on the Indian Ocean.
  • Zambia is the latest flash point. Africa’s second-biggest copper producer slapped a $7.9 billion tax assessment on First Quantum Minerals Ltd. and said it’s planning an audit of other miners in the country. Companies operating in Zambia include units of Glencore Plc and Vedanta Resources Plc.
  • Next door in the Democratic Republic of Congo, Glencore, the world’s biggest commodity trader, is dealing with a dispute over a new mining code that dramatically boosts taxes, while major gold producer Mali has reportedly saidit might follow Congo’s example. Tanzania has all but crippled its biggest gold miner Acacia Mining Plc, a unit of Barrick Gold Corp., with export bans and a whopping $190 billion tax bill.  
12 Jan 2018

Investment Grade Weekly Insight 01/12/2018

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of January 4-January 10 were $5.1 billion, the largest inflow in over 3 months. Note that these are total flows across four investment strategies: Short, Intermediate, Long and Total Return. Per Bloomberg, investment grade corporate issuance for the week through January 11 was $25.425bln. As we go to print, the Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 90, relative to the 2017 tight of 93.

(Bloomberg) IG Sales May Rise as Banks Begin to Exit Blackouts

  • On the cusp of a long holiday weekend, high-grade issuers may choose to remain on the sidelines to close out the week. Activity has been muted with the week standing at just over $25b, falling shy of estimates calling for at least $30b.
  • Expect an increase in sales next week as more U.S. banks emerge from earnings blackouts.
  • JPMorgan (JPM) and Wells Fargo (WFC) both reported 4Q earnings this morning. Citibank (C) comes Tuesday, Bank of America (BAC) and Goldman Sachs (GS) report Wednesday and Morgan Stanley (MS) is Thursday.

(Bloomberg) Junk Euphoria Unshaken as Funds See Biggest Inflow Since Dec.’16

  • Investors reiterated their confidence in junk bonds by investing in high yield funds. Lipper reported an inflow of $2.65b into U.S. high yield funds, the biggest weekly inflow since Dec. 2016.
    • Investor euphoria led to the return of pay-in-kind notes offering in the primary yesterday, with Ardagh pricing at the tight end of talk with orders of more than $1.25b, about 3x the size of the offering. The Ardagh bonds traded at 102.875 after pricing at par
    • Investors shrugged off aggressive use of proceeds, suggesting risk appetite was strong. Ardagh raised debt to “provide liquidity to shareholders.” CSC Holdings is marketing bonds to fund a dividend to parent Altice USA
    • Recent new issues have been flooded with big orders. Ensco priced through talk and increased the offering size to $1b with orders more than 4x the original size of the offering. Sunoco’s $2.2b 3-part notes got orders for ~$6b earlier in the week
    • Issuance volume was on pace with 2017 with $5.5b pricing MTD
    • While junk yields seemed weary and stalled a bit as they come off 2-mo. lows; there appeared to be no clear catalyst yet that could derail junk bonds in the near term, as stocks climbed to new highs, oil set new 37-mo. high and volatility was still near multi-year lows
    • High yield continued to be backed by an overall supportive environment:Moody’s Liquidity Stress Indicator kicked off 2018 with a new low of 2.5%, suggesting junk issuers were backed by steady economic growth and buoyant credit markets as investors scramble for yield
    • Corporate default rates declined, another critical pillar factor for high yield
    • Steady economy, declining default rates, low volatility, steady oil prices and stocks augur well for high yield
        • Eight deals for $5.5b MTD
        • 510 deals for $275.393b in 2017



05 Jan 2018

Investment Grade Weekly Insights 01/05/2018

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of December 28-January 3 were $3.0 billion, the largest inflow in six weeks. Per Bloomberg, investment grade corporate issuance for the week through January 4 was $21.05bln. As of today, the Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 94, which is +1 from the 2017 tight of 93. In 2007, spreads bottomed at an OAS of 82. The all-time tight is 54, which occurred in March of 1997.

(WSJ) Who Are the Big Players in the Bond Market? Small Investors

  • Ordinary investors are a growing force keeping longer-term bond yields low, even as the Federal Reserve has raised interest rates. They are helping cap borrowing costs for individuals, corporations and state and local governments, while boosting the appeal of riskier assets such as stocks, which have climbed to record after record in recent months.
  • John Nederhiser exemplifies the current crop of bond buyers. While professional money managers fret about interest-rate increases, rising budget deficits and inflation, the 58-year-old accountant in Gresham, Ore., said such concerns won’t deter him from continuing to add to his fixed-income holdings. “Pretty much what I’m going to do is stay the course,” he said.
  • An aging population means investors like Mr. Nederhiser are likely to remain a factor, as people typically increase bondholdings as they approach retirement. The population of U.S. residents age 65 or older has grown more than 40% since 2000 to 49.2 million in 2016, according to the Census Bureau, which could signal steady demand for the debt. The median age for investors with fixed-income holdings ranging from mutual funds to individual bonds is 53, according to the Investment Company Institute’s annual mutual-fund shareholder survey, up from 49 in 2007.
  • Some older investors have lived through periods where inflation climbed above 10% and where it cratered below zero, while watching plunges in technology stocks and home prices dent their accumulated wealth. For some, that has led to a pragmatic appreciation of bonds’ steady income and relative stability.
  • The sanguinity of ordinary bondholders stands in contrast with 2017 statements from some more famous investors such as Bill Gross and Jeff Gundlach, both dubbed “the Bond King” at various times. Mr. Gross and Mr. Gundlach each created a stir last year by intimating a broad selloff might be approaching.
  • Much of the support individual investors are giving to the Treasury market is as a result of their investments in diversified bond funds, not an insatiable hunger for government debt. That is because government debt now makes up more than one-third of the Bloomberg Barclays U.S. Aggregate bond index, a popular reference point that guides how many portfolio managers assemble their holdings.
  • The amount of Treasurys in the index has risen from roughly one-quarter in 2007, before the financial crisis led to an explosion in government borrowing and a slowdown in issuance from corporate and mortgage borrowers. The proportion of Treasurys may rise further as the Fed pares back its $4.2 trillion in holdings of government and mortgage debt, which indexes don’t count since the Fed’s portfolio sits outside of the open market.
  • With government bond yields already near modern lows, some analysts see complacency as among the biggest risks. And some investors find it difficult to settle for single-digit bond yields when the S&P 500 index has posted double-digit returns for the seventh time in the past nine years.
  • It remains to be seen if retail investors will hang on to bonds should yields start to skyrocket. During the 2013 “taper tantrum,” which followed then-Fed Chairman Ben Bernanke’s statement that the central bank was preparing to stop its bond purchases. Bond funds suffered net outflows for eight consecutive months afterward, while the yield on the 10-year note almost doubled to around 3%.


(Barron’s) Intel: Don’t Anticipate Any Impact to Business

  • Intel (INTC) executives this afternoon held a conference call to address reports today, initiated by The Register, that the company had a “bug” or flaw in its chips that raised security issues, a charge the company had this afternoon rejected.
  • Led by Intel executive Steve Smith, the head of the company’s data center engineering, the company said repeatedly its chips are “performing as designed” and that info appearing today had contained mis-information.
  • “There were some info in media that was, I’ll call it, ahead of time,” said Smith, referring to the fact Intel said it had been working “for some time now” with security researchers and with operating system vendors and computer makers to prepare “mitigation” of security risks. The reports in media were “potentially misleading,” said Smith, “so wanted to clarify.”
  • Added Smith, “Since our products are performing to specification, we don’t anticipate a material impact to our business or our products, because they continue to operate properly.”
  • “We don’t expect any financial implication around Intel’s products,” Smith later reiterated.


(Bloomberg Markets) Morgan Stanley Wealth Exits Junk Bonds, Warns on Recession Risk

  • It’s too late in this market cycle to bet on high-yield bonds, according to Morgan Stanley Wealth Management.
  • So, the $2 trillion money management arm is completely slashing junk bond allocation. True, tax cuts are expected to inject fresh momentum into high-flying stocks, but the boost may be short-lived and mask balance-sheet weaknesses, Mike Wilson, chief investment officer, wrote in a note distributed Wednesday.
  • “While the tax cuts just enacted in the U.S. may lead to better growth in the short term, they may also bring forth the excesses we typically see before a recession — which is something credit markets figure out before equities,” according to the note. “We recently took our remaining high yield positions to zero as we prepare for deterioration in lower-quality earnings in the U.S. led by lower operating margins.”
  • Though Morgan Stanley doesn’t expect a recession in 2018, it sees the risks rising. Between tightening monetary policy and fewer positive surprises in earnings and economic data, any remaining upside is likely to be speculative, according to the firm.
  • “We think it will be much tougher to make money in 2018 and 2019 than in 2016 and 2017 as the risk of a recession and outright bear market comes closer,” Wilson wrote. “Late-cycle dynamics have become even more evident.”





08 Dec 2017

Investment Grade Weekly Insight 12/08/2017

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $1.357bln. This brings the YTD total to +$318.643bln in total inflows into the investment grade markets. IG fund flows remain on pace for the strongest year on record. Per Goldman Sachs, year-to-date cumulative inflows into IG mutual funds account for just 13% of AUM while ETFs continue to grow at the expense of mutual funds –ETFs account for 32% of AUM growth thus far in 2017. According to Bloomberg, investment grade corporate issuance for the week through Thursday was $17.315bln, and YTD total corporate bond issuance was $1.32t. Investment grade corporate bond issuance thus far in 2017 is nearly flat, trailing 2016 issuance by 1% year-to-date. The Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 97 as we go to press on Friday morning. The OAS hit 94 for 5 sessions in October, so we are still modestly wider than the tightest levels that we have seen thus far in 2017 and within distance of the tightest level since 2007 when spreads bottomed at an OAS of 82. We have quite a ways to go if we were to flirt with all-time tights of 54, last seen in March of 1997.

(Bloomberg) Expect Negative Excess Returns in Global Credit: MS’s Richmond

  • Investors can expect negative excess returns across global credit in 2018, and we are later in the credit cycle than people generally realize, Adam Richmond, Morgan Stanley’s head of credit research, said on a panel yesterday at the Bloomberg Intelligence Credit Outlook Forum.
    • “You don’t need a recession to get negative returns late in a cycle,” Richmond said
      • Haven’t been three straight years of positive excess returns in credit since 1996; 2017 will be the third year, so it may be due for a year of negative excess returns
    • Richmond predicts spread widening in credit across the globe. Caution is required, this is a global phenomenon
      • Volatility was artificially compressed by central bank policy and now the dynamics are changing. It’s not just the Fed that is entering rate-hike phases; ECB, PBOC, BOE are moving in that direction too. Even the BOJ is increasing its yield-curve target later next year
    • “But from a valuation perspective it’s a challenge wherever you look in the world”
    • “We can’t tell investors to just sit in cash, so our answer is, be invested, but this is the time in the cycle to be very picky and to be up-in-quality, and so while it’s boring and investors don’t want to hide out in defensive credits, we think you’re supposed to do that”
      • Take IG over HY. Investors may want to be in Single-As over BBBs in IG bonds. Focus on sectors that will be relatively unscathed through a credit cycle, such as U.S. financials. “This is very much not going to be a financially-driven credit cycle, so this sector will behave more defensively”

(Bloomberg Law) Forget AT&T-Time Warner. Watch These Non-Media Mega-Deals

  • Media mergers are big news lately with the Justice Department’s lawsuit to stop AT&T Inc. from merging with Time Warner Inc. and Sinclair Broadcast Group Inc.’s effort to buy Tribune Media Co.
  • But the laser focus on media consolidation may cause the big mergers in other industries to disappear under the radar. There are notable mega-mergers (well above $10 billion) slated to close next year in agriculture, aerospace, oil, and apparel. CVS Health Corp.’s bid to buy Aetna Inc. for $67.5 billion can be added to that list, although it has not yet had its initial antitrust review.
    • Bayer-Monsanto is the last of three seed-pesticide company pairings announced in 2015-16. The transaction faces continued resistance since it was announced in September 2016. Bayer’s agreed price has since dropped from $66 billion to $63.5 billion.
    • Eyewear giants Essilor International SA and Luxottica Group SPA announced a 45 billion euro ($53 billion) merger in January. Their businesses are largely complementary, but antitrust regulators are still focusing on potential losses in competition. Essilor is the largest supplier of ophthalmic lenses worldwide, and Luxottica is the largest supplier of eyewear worldwide.
    • Industrial gas giants Linde AG and Praxair Inc. announced a deal on June 1, 2017 for $41 billion to create the world’s largest industrial gas supplier. The combined company would leapfrog current market leader Air Liquide SA, which merged with Airgas Inc. in 2016 for $13 billion.
    • United Technologies Corp. announced a $23 billion bid for Rockwell Collins Inc. on Sept. 4, 2017. The deal unites two aerospace behemoths that together equip commercial and military aircraft from “tip to tail.”

(Bloomberg) AT&T Commits to Time Warner Deal Even as Judge Delays Deadline

  • The U.S. Justice Department’s antitrust lawsuit to blockAT&T Inc. from buying Time Warner Inc. will go to trial March 19, a later date than the companies had sought to begin their epic legal fight with the government.
  • With the trial more than three months off, AT&T and Time Warner will have to extend their self-imposed April 22 deadline for completing the $85.4 billion deal. U.S. District Judge Richard Leon said Thursday in Washington that the companies should push back the cutoff date by 60 to 90 days to give him time to make a decision.
  • “We will promptly discuss the court’s post-trial schedule with Time Warner,” AT&T General Counsel David McAtee said in a statement. “We are committed to this transaction and look forward to presenting our case in March.”
  • If approved, the deal would reshape the media landscape by uniting a telecom giant with the owner of CNN, Warner Bros., TNT, TBS and HBO. AT&T, the owner of DirecTV, is the largest pay-TV distributor, as well as a powerhouse in mobile phones and landlines. The Justice Department has argued that letting AT&T own the films and TV shows that flow down its pipes would harm consumers and competitors.
  • Under their current agreement, if AT&T and Time Warner fail to complete their deal by April 22, they can choose to extend the deadline or either party can walk away. If the judge blocks the deal, AT&T must pay Time Warner a breakup fee of $500 million.
  • “This is not a normal case from many perspectives,” Leon said from the bench Thursday. He estimated the trial would take about three weeks. “This is going to be a lot of hard work and a lot of sacrifice.”


(Bloomberg) U.S. Payrolls Rise 228,000; Wages Gain Less Than Forecast

  • The U.S. added more jobs than forecast in November and the unemployment rate held at an almost 17-year low, though below-forecast wage gains suggest the labor market still has slack to absorb.
  • Payrolls rose 228,000, above the median economist estimate of 195,000, after a downwardly revised 244,000 advance, Labor Department figures showed Friday. Average hourly earnings increased 2.5 percent from a year earlier, less than the 2.7 percent projection, and October’s figures were revised lower.
  • The data provide a clearer picture of the labor market after volatility caused by two hurricanes mostly dissipated, though there may have been some lingering effects. While the job market remains a bulwark for the economy and investors see a Federal Reserve interest-rate hike next week as a near- certainty, the lack of acceleration in wages remains a puzzle that could factor into the pace of increases in 2018.
  • Average hourly earnings rose 0.2 percent from the prior month following a revised 0.1 percent drop, the report showed. Analysts had penciled in a gain of 0.3 percent for November. The gain from a year earlier followed a downwardly revised 2.3 percent advance for October.
  • Economists expect that in time, wages will post a sustained pickup, which has remained elusive in this expansion even though labor-market slack is steadily disappearing. Faster gains in paychecks would boost consumer spending, which accounts for about 70 percent of the economy. Jerome Powell, President Donald Trump’s nominee to head the Fed, said last month at hisconfirmation hearing that he doesn’t see wages signaling any tightness in the labor market.
01 Dec 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.3 billion and year to date flows stand at -$15.9 billion. New issuance for the week was $6.3 billion and year to date HY is at $255 billion, which is up 22% over the same period last year.

(Bloomberg) Junk Investors Welcomed Debut Offerings as Yields Held Steady

  • Junk bond issuers kicked off the week on a busy note, adding $2.5b to the pipeline; Starwood Property drove by and priced $500m at the tight end of talk.
  • Two of the four issuers, MATW and MPVDCN, were tapping the debt markets for the first time, suggesting investors were willing to consider unknown credits
  • Junk yields were steady as oil prices held firm and were off a tad from the 29-mo. high on Friday; stocks were near new highs
  • GNC Holdings dropped its $500m 5NC3 notes offering and boosted its loan as bond investors strongly resisted adding on a retail name to their portfolios indicating investors were cautious in assessing risk
  • The supportive environment for high yield continued amid steady stocks, strong oil and light supply
  • Other factors that backed high yield remained strong: the Moody’s Liquidity Stress Indicator was at a new record low of 2.6% as of mid-November, suggesting strong corporate liquidity and issuers having ready access to capital markets
  • Corporate default rates declined and the covenant stress index slipped to 2.3% in Oct., suggesting low risk of issuers violating financial maintenance covenants
  • Steady economy, declining default rates, low volatility, rising oil prices and steady stocks augur well for high yield  

(Bloomberg) Rare Expansion for Corporate Junk on Busy Issuance, Downgrade

  • The U.S. corporate high yield market has expanded in November, only the fourth monthly size gain in the past year as gauged by the Bloomberg Barclays U.S. Corporate High Yield Bond Index. Active primary, as well as a number of downgrades, will increase the net roster along with the index capitalization in the Dec. 1 rebalancing.
  • Membership in the Bloomberg Barclays U.S. Corporate High Yield Bond Index is due to expand by a net 14 securities in the Dec. 1 rebalancing, only the fourth instance of roster growth in the past 12 rebalancing cycles. The primary market heated up in November on rising oil prices and credit spreads near the tightest levels in three years. The median net membership change over the past 12 rebalancings remains at negative 11 bonds.
  • The Bloomberg Barclays U.S. Corporate High Yield Bond Index capitalization will add an estimated $4 billion in the Dec. 1 rebalancing, with $24 billion in bonds joining vs. $20 billion exiting. New issues account for $19 billion, with energy companies particularly active in the primary market as crude oil rose above $55 a barrel. 

(Deal Reporter) Regal, Cineworld Said to Reach Agreement on $23/Share

  • Cineworld and Regal reached an agreement in principle on RGC takeout price of $23/share
  • Talks are still ongoing and not the final agreement yet, though deal expected in next few days
  • Offer price not likely to be further improved, seen as firm
  • Funding for Cineworld’s bid for Regal Entertainment looks “stretched,” citing a top Cineworld holder, who said there’s a question of how much leverage the combined company can handle.
  • RGC/Cineworld implied post-deal net debt to Ebitda, prior to any equity raise, likely >7x vs AMC’s 5.6x
  • Cineworld in process of meeting with large holders this week, holders that will have input on the company’s likely equity offering  

(Modern Healthcare) Healthcare industry braces for multiple hits from Senate tax bill

  • The sprawling tax cut legislation speeding through Congress is likely to result in major changes in healthcare, including significant insurance coverage losses, higher premiums, tighter access to capital, and greater margin pressure.
  • Experts caution that the legislation will have big downstream effects on funding for Medicare, Medicaid, Affordable Care Act subsidies and other federal and state healthcare programs. That’s because the projected $1.5 trillion increase in the federal budget deficit resulting from the tax cuts would put pressure on Congress to slash healthcare spending.
  • Indeed, Sen. Marco Rubio (R-Fla.) said Wednesday that cutting taxes must be followed by restructuring and shrinking spending on entitlement programs, including reducing benefits and raising the eligibility age for Medicare and Social Security.
  • Insurers and providers strongly oppose the Senate tax bill’s provision, likely to be adopted by the House, that would immediately repeal the Affordable Care Act’s tax penalty on people who don’t obtain health insurance. They warn that would hurt market stability by leading healthier people to drop coverage, thus driving up premiums and pushing insurers to exit the exchange market. 
  • Healthcare industry analysts also are worried about the Senate bill’s repeal of the federal deduction for state and local taxes paid by individuals. That likely would create pressure in states with relatively high state and local taxes, like California and New York, to reduce taxes, leading to less revenue for funding Medicaid and other healthcare programs.
  • And that could hurt providers and insurers. “We already are in a world where operating margins are being pressured and are generally declining,” said Martin Arrick, managing director of S&P Global Ratings’ not-for-profit group. “This will be one more event that puts additional pressure on provider margins.” 



17 Nov 2017

High Yield Weekly Insight 11/17/2017

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$5.0 billion and year to date flows stand at -$15.3 billion. New issuance for the week was $6.2 billion and year to date HY is at $243 billion, which is up 20% over the same period last year.

 (Bloomberg) Lows Are in for High Yield Spreads as Cycle Moves in Double Time

  •  High yield’s 326-bp option-adjusted spread (OAS) of Oct. 24 may mark the lows of this cycle amid muted fundamental gains and low absolute yields. That spread compares with the 323-bp nadir of the last tightening cycle that ended in 2014. The current tightening cycle has been almost twice as rapid as the last.
  • A nascent correction in high yield, which saw OAS widen 53 bps from multiyear lows in late October, may have room to run. The progression of the rally from early 2016 wides to today’s levels echoes the prior 2011-14 cycle, albeit at twice the pace. The first leg of the correction from the June 2014 lows pushed spreads back above 400 bps and reached 552 bps within six months, mostly mirroring the early stages of the oil-price unwind. Catalysts for a continued selloff are less explicit this go-round.
  • Spread-widening from the Oct. 24 tights has been paced by weakness in communications and non-cyclicals, while energy has led after trailing for much of 2017. Bonds from Frontier and CenturyLink in wirelines, and those of Community Health in healthcare, have shown some of the steepest losses. The two sectors represent about 33% of the overall high yield index.
  • Leverage has shown modest improvement vs. year-ago levels, lower by about a quarter turn, though it remains high in historic terms. That contrasts with the spread move from early 2016 that dropped OAS to prior-cycle lows. Further, the pace of improvement in fundamentals — from leverage to interest coverage — has flattened as oil prices have normalized, with leverage across most sectors actually near flat to higher over the last year. 


(PR Newswire) Suburban Propane Announces Financial Results


  • Adjusted EBITDA increased $20.0 million, or 9.0%, to $243.0 million in fiscal 2017 from $223.0 million in the prior year. Net income for fiscal 2017 was $38.0 million, compared to $14.4 million in fiscal 2016. Revenues for fiscal 2017 of $1,187.9 million increased $141.8 million, or 13.6%, compared to the prior year, primarily due to higher retail selling prices associated with higher wholesale costs, combined with higher volumes sold. Retail propane gallons sold in fiscal 2017 increased 6.0 million gallons, or 1.4%, to 420.8 million gallons.
  • In announcing these results, President and Chief Executive Officer Michael A. Stivala said, “Fiscal 2017 presented another challenging operating environment as a result of the impact on customer demand arising from the unprecedented, second consecutive record warm winter heating season, as well as the devastating effects of the two Category 4 hurricanes.  Through it all, the resiliency of our people, and our preparedness coming into the year, contributed to a meaningful improvement in our operating performance; including a 9% increase in Adjusted EBITDA compared to the prior year.”
  • Concluding his remarks, Mr. Stivala said, “As we enter fiscal 2018, one of our goals will be to focus on restoring our balance sheet strength to best position the business for long-term profitable growth.  With the previously announced reduction in our annualized distribution rate, we have reduced our annual cash requirements to a level that provides added downside protection in the event of a sustained period of warm weather and, with an improvement in weather, should provide enhanced flexibility to reduce debt and make investments in line with our strategic initiatives.  We have adapted our business model to the recent warm weather trends, as evidenced by the improvement in earnings for fiscal 2017 and, as we enter a new heating season, our people are prepared to continue providing the highest level of service quality and total value to our customers in each market we serve.”  

(Financial Times) Altice to pull back on acquisitions and focus on cutting debt 

  • Altice has promised to get its debt under control after ruling out more blockbuster takeovers and expensive content rights after an alarming collapse in its share price over the past two weeks.
  • Dennis Okhuijsen, chief financial officer, told investors at the Morgan Stanley Technology, Media & Telecom Conference that the telecom company would now focus its efforts on deleveraging the business. “We are very focused on no M&A and to go back to the basics,” he said. “We take deleveraging very seriously,” he added, raising the prospect of non-core asset sales, including its mobile masts.   Mr. Okhuijsen also ruled out spending more money on content.
  • Altice shares have fallen sharply since it issued a poorly received trading statement two weeks ago. Michel Combes, chief executive, resigned last week as part of a management shake-up that saw founder Patrick Drahi take the reins of the company.
  • The collapse in the shares has called its aggressive acquisition strategy into question only months after it was linked with a $185bn bid for US cable company Charter Communications.

(Environment Analyst) Construction boom fuels AECOM 

  • AECOM has reported a year of revenue growth, record orders and free cash flow in its latest financial results. However, the strong performance of its construction services offset a decline in design and consulting.
  • AECOM’s full year revenue of $18.2bn for the twelve months ending 30 September 2017 was 4.6% up on the prior year, boosted by a particularly strong fourth quarter which saw revenue up 12% year-on-year to $4.9bn. Organic growth of 3% for the twelve month period was boosted by a further $270m contribution from acquisitions.
  • Net income jumped 158% to $421m. As a result the firm was able to reduce its debt by 9.9%. Although still a substantial figure at $3.1bn, AECOM’s debt has now fallen by $1.4bn since the closing of the URS acquisition in Q4 2014.    



10 Nov 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.1 billion and year to date flows stand at -$9.1 billion. New issuance for the week was $5.1 billion and year to date HY is at $237 billion, which is up 18% over the same period last year.

 (Bloomberg) Junk Bonds on Wait and Watch Mode

  •  Junk bonds slowed down a bit amid lack of clarity on the new tax initiatives, together with concerns about rate risk and the future of the monetary policy as William Dudley, the president of NY Fed, announced his retirement.
  • The Federal Reserve will miss three of its governors next year, leading to new faces on the committee
  • While junk bonds have lost some spring in their step, there has been no material change yet to the supportive backdrop as oil prices saw the biggest jump in more than 3 months and closed at a new 28-mo. High
  • The unveiling of the new tax policy by the House rattled highly leveraged companies, as the new proposal considered a cap on interest deductibility
  • Clearly, investors are still backing risk as Windstream increased its bond offering and priced at the tight end of talk even as the issuer was dealing with threats of litigation amid an overall struggling communications industry

(Bloomberg) Teva’s Schultz Faces Dwindling Choices as Rating Cut to Junk

  • Teva Pharmaceutical Industries Ltd. Chief Executive Officer Kare Schultz is finding himself in the hot seat in his first week on the job with rapidly shrinking options to halt the slide in the Israeli company’s securities after its debt was cut to junk overnight.
  • Fitch Ratings cited the “significant operational stress” that the world’s biggest maker of copycat drugs faces at a time when it needs to pay down debt, and pared its rating by two levels to non-investment grade late on Monday. Teva’s debt obligations are almost three times its market value following an ill-timed $40 billion acquisition last year of Allergan Plc’s generics business.
  • “We find it troubling that management, which presumably met with Fitch before the downgrade, was not able to convince the rating agency that it would take more dramatic deleveraging actions in order to preserve investment grade ratings,” Carol Levenson, an analyst at bond research firm Gimme Credit, said in a report.

  (Business Wire) B&G Foods to Appoint Bruce C. Wacha as Chief Financial Officer

  • B&G Foods, Inc. announced today that it will appoint Executive Vice President of Corporate Strategy and Business Development, Bruce C. Wacha, to Executive Vice President of Finance and Chief Financial Officer, effective November 27, 2017. As Chief Financial Officer, Mr. Wacha will oversee the Company’s finance organization and be responsible for all financial and accounting matters. He will also continue to oversee the Company’s corporate strategy and business development, including mergers & acquisitions, capital markets transactions and investor relations. He will continue to serve on the Company’s executive management team, reporting to President and Chief Executive Officer, Robert C. Cantwell.
  • “Since joining our executive team in August, Bruce has demonstrated excellent leadership skills, financial expertise and an excellent work ethic,” stated Mr. Cantwell. “I’m delighted to announce Bruce’s appointment to CFO. Bruce is an experienced and talented executive and after working with Bruce the past few months I am confident that he is the right person to lead our finance organization and help us achieve our growth objectives.”
  • Mr. Wacha joined B&G Foods from Amira Nature Foods, where he spent three years as that company’s chief financial officer and executive director of the board of directors. Prior to joining Amira Nature Foods, Mr. Wacha spent more than 15 years in the financial services industry at Deutsche Bank Securities, Merrill Lynch and Prudential Securities, where he advised corporate clients across the food, beverage and consumer products landscape. Mr. Wacha earned a bachelor of arts and a master of business administration from Columbia University’s Columbia College and Columbia Business School.

(Moody’s) B&G Foods Unsecured Debt Rating Raised One Notch to B2

(Variety) Theater Chain AMC Entertainment Slides to $42.7 Million Loss, Blames Box Office

  • Citing lousy box office performance, AMC Entertainment Holdings has reported a third-quarter loss of $42.7 million, compared with earnings of $30.4 million for the 2016 quarter.
  • “We have been predicting weakness in the third quarter industry box office, due to the quantity and subject matter of the films that were scheduled to be released,” said Adam Aron, president and CEO. “Not surprisingly, our foreshadow was accurate.”
  • The third quarter was one of the roughest in recent years for the domestic box office with Sony’s “The Dark Tower” and STXfilms’ “Valerian and the City of a Thousand Planets” falling short of expectations. August box office was the lowest in a decade.
  • “In our view, the weakness of the summer box office is not indicative of a long-term trend, especially immediately after two and a half years of record box office performance and just before what we expect will be strong and robust consumer demand through year end,” he said. “We are similarly confident and excited about the film slate that is coming in 2018 and again in 2019. Accordingly, we remain optimistic about the viability and strength of the movie theatre industry generally, and of AMC specifically.”