Category: Investment Grade Weekly

16 Sep 2019

CAM Investment Grade Weekly Insights

Spreads are set to finish the week modestly tighter while Treasuries are at the forefront with the 10yr now 30 basis points higher from last Friday’s close of 1.560%. The OAS on the corporate index closed at 117 on Thursday after closing the prior week at a spread of 119. Equity indices are trading near or above all-time highs as risk markets cling to any glimmer of hope or positive headline that might indicate U.S.-China trade progress. At CAM we remain skeptical of a near term trade resolution and are cautious in our positioning as a result.

The primary market had another strong week after posting its busiest week ever in the previous weekly session. Nearly $42bln of new corporate debt was brought to the market making it the 3rd busiest week of the year according to data compiled by Bloomberg. Monthly volume has topped $116bln while year-to-date corporate supply stands at $882bln. After having trailed 2018 issuance by as much as 13% in June, 2019 year-to-date issuance is now down just 2% from the prior year. It will be interesting to see how the violent move higher in rates may affect the primary market going forward as higher rates may serve to delay some issuance as borrowers weigh funding costs relative to long term capital allocation plans.

According to Wells Fargo, IG fund flows during the week of September 5-11 were +$7.2bln, the second largest inflow on record. This brings YTD IG fund flows to +$209bln. 2019 flows to this juncture are up 8 % relative to 2018.

(Bloomberg) Investment Grade New Issues Trade Tighter Despite Supply Surfeit

  • Demand for U.S. investment-grade credit is robust, with this month’s avalanche of high-grade bond sales trading mostly stronger, data compiled by Bloomberg show. Spreads on the vast majority of deals priced last week and sized at $1 billion or more are tighter.
    • 20 out of 21 bonds sampled were tighter as of Friday morning
      • Average change in spread was 8 basis points

(Bloomberg) Fed Seen Cutting Rates Twice More in 2019 Before Holding Steady

  • U.S. central bankers will trim interest rates by a quarter percentage point next week, and again in December, before leaving the target range for their benchmark rate at 1.5%-1.75% for an extended period, according to economists surveyed by Bloomberg.
  • In the Sept. 9-11 poll of 35 economists, respondents lowered their projections for the path of U.S. rates compared to a similar survey in July. However, they firmly rejected the idea the Federal Reserve had begun a series of moves that will prove more prolonged than the “mid-cycle adjustment” that Chairman Jerome Powell predicted in July, when the Federal Open Market Committee cut for the first time in more than a decade.

(Bloomberg) Elliott’s $3.2 Billion AT&T Bet Signals ‘There Will Be a Fight’

  • AT&T Inc.’s sweeping transformation from Ma Bell to a multimedia titan has gone both too far and not far enough for Elliott Management Corp.
  • Billionaire Paul Singer’s New York hedge fund disclosed a new $3.2 billion position in AT&T, taking on one of the nation’s biggest and most widely held companies with a plan to boost its share price by more than 50% through asset sales and cost cutting.
  • Elliott outlined a four-part plan for the company in a letter to its board Monday. The proposal calls for the company to explore divesting assets, including satellite-TV provider DirecTV, the Mexican wireless operations, pieces of the landline business, and others.
  • AT&T is the most indebted company in the world — not counting financial firms and government-backed entities — with $194 billion in total debt as of June, a legacy of Stephenson’s steady clip of large acquisitions. The CEO used to keep a spreadsheet of a few dozen companies that he studies on his tablet to plan his next big deal, people familiar with the matter told Bloomberg in 2016.
06 Sep 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Spreads are set to finish the week tighter, a remarkable feat considering the tsunami of new issue supply.  The OAS on the corporate index closed at 120 on Thursday after closing the prior week at a spread of 120 but as we go to print on Friday afternoon spreads have ground tighter throughout the day.  The 10yr Treasury is 1.54%, essentially unchanged on the week but it had traded as low at 1.45% on Wednesday before positive headlines related to trade sparked a sell-off into the Thursday open.

The primary market just capped off the busiest week in its entire history, and in a holiday shortened week with a jobs report to boot.  Corporate borrowers brought over $75bln in new debt during the week, smashing the previous 2013 record of $66bln.  According to data compiled by Bloomberg, year-to-date corporate supply stands at $840bln.  After having trailed 2018 issuance by as much as 13% in June, 2019 year-to-date issuance is now down just 2% from the prior year.  The fact that secondary market spreads tightened amid such staggering supply speaks to the insatiable demand for IG U.S. corporate credit.

According to Wells Fargo, IG fund flows during the week of August 29-September 4 were +$4.4bln.  This brings YTD IG fund flows to +$202bln.  2019 flows to this juncture are up 7.7% relative to 2018.


16 Aug 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Spreads are likely to finish wider for the second consecutive week.  The OAS on the corporate index is at 124 this morning after closing the prior week at a spread of 120.  Spreads opened the previous week at 113, so the move wider in credit has been meaningful over the course of the past two weeks, but this move has largely been overshadowed by lower Treasuries.  The 10yr is wrapped around 1.54% as we go to print after having closed the week prior at 1.74%.  The 10yr closed the month of July at 2.01%.  The move lower in rates has been quick and intraday ranges have been volatile with the 10yr trading below 1.5% on Thursday while the 30yr traded below 2% for the first time in history.  For all the volatility in rates and spreads the corporate market has a positive tone as we go to print Friday morning.  There are not many sellers of corporate credit while buyers are plentiful.  This has made it difficult to find attractive bonds in recent weeks but we at CAM are chipping away and finding select opportunities in credit.




The primary market continues to show resiliency amid a volatile tape.  Corporate borrowers brought $23bln in new debt during the week, pushing the month to date total north of $64bln.  According to data compiled by Bloomberg, year-to-date corporate supply stands at $754.7bln, which trails 2019 supply by 6%.  The primary is set to enter a quiet period for the final two weeks of August before ramping up after Labor Day.  September has historically been among the strongest months for the new issue calendar.

Fund flows into investment grade corporates were strong for the second consecutive week.  According to Wells Fargo, IG fund flows during the week of August 8-14 were +$5.4bln.  This brings YTD IG fund flows to +$174bln.  2019 flows to this juncture are up 6.7% relative to 2018.


(Bloomberg) Investors Rushed to High Grade as Recession Fear Spooked Markets

  • Investors dove into U.S. investment-grade corporate bond funds during a week when fears of a global economic slowdown rose and trade-related headlines brought wild swings in stocks, credit and Treasuries.
  • Investors plowed $4 billion into high-grade funds for the week ended Aug. 14, according to Refinitiv’s Lipper. It was the biggest inflow since June, as U.S.-China trade headlines continued to rattle markets and concerns about a slowing global economy inverted a key portion of the U.S. Treasury yield curve for the first time in 12 years. High-yield funds posted a modest inflow of $346 million.
  • Investment grade has become the best performing asset class in fixed income with returns of over 13% so far this year, according to the Bloomberg Barclays US Corporate Total Return index.
  • The high-grade primary market has also remained steadfast during the volatility in recent weeks. With the exception of Wednesday, when issuers sidelined themselves during the rout, debt borrowers have been able to sell bonds at cheaper funding costs.
  • Last week investors yanked over $4 billion from junk bond funds, the most since October, while adding $2.8 billion to high-grade funds.
09 Aug 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Spreads in the corporate market are set to finish the week meaningfully wider as the OAS on the index opened at 113 on Monday and is trading at 119 as we go to print on Friday morning.  Rate volatility was as the forefront this week as the rates market has more carefully considered the impact of a full blown trade war. The 10yr Treasury closed at 1.85% last Friday and is wrapped around 1.70% as we go to print this morning.  Spreads opened the month of August at year-to-date tights of 108 and have now moved 11 wider, but at the same time the 10yr Treasury is 30 basis points lower, so the net effect is lower yields for corporate credit.  While the Fed cut the federal funds rate by 25bps last Wednesday, the market expectation is that this is merely the beginning of a multi-cut easing cycle.   Federal funds futures are now implying 2 additional cuts by the end of 2019 and 2 more by the end of 2020.  At CAM, we are of the belief that it is quite possible that markets are underestimating the probability of a lack of near term trade resolution and the associated impact that a prolonged trade dispute could have on risk assets.



Even amid heightened volatility and uncertainty, the primary market was quite active during the week.  In fact it was the fifth busiest week of the year that also saw Occidental Petroleum print the 4th largest bond deal of the year which was met with robust investor demand.  While spreads are set to finish the week meaningfully wider it is clear that there is solid demand for corporate credit, particularly higher quality issuers.  According to data compiled by Bloomberg, year-to-date corporate supply stands at $731.9bln, which trails 2019 supply by 6%.  It is worth noting that for most of 2019 supply has trailed 2018 by 10-12% but this gap has narrowed in recent weeks.  The M&A pipeline continues to grow and it would not surprise us at CAM if issuance were robust through the end of September which could continue to push issuance totals toward 2018 levels.

Fund flows into investment grade corporates escalated throughout the week.  There was a clear bifurcation between the high yield and investment grade credit markets as flows during the week were driven by a flight to quality.  According to Wells Fargo, IG fund flows during the week of August 1-August 7 were +$3.3bln while high yield funds experienced losses of -$3.7bln over the same time period and leveraged loan funds posted outflows of -$963 million.  This brings YTD IG fund flows to +$169bln.  2019 flows to this juncture are up 6.5% relative to 2018.  The fact that flows are up while new issue supply is down is but one factor that has led to a supportive environment for credit spreads.

19 Jul 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The corporate market was modestly wider on the week with the spread on the index 1 basis point wider week over week as we go to print on Friday morning.  Spreads have largely been in a holding pattern for the month of July, as the index opened the month at an OAS of 115 versus a 113 close yesterday evening.  The 10yr Treasury continues to hover just above 2% amid dovish commentary from Federal Reserve officials.  Media blackout begins tomorrow for Fed officials so we will get a respite from commentary until after the July 31 FOMC decision.




It was a quiet for the primary market as less than $15bln in new corporate debt was brought to the market which was underwhelming relative to the $30bln consensus figure.  According to data compiled by Bloomberg, year-to-date corporate supply has topped $600bln, which trails 2019 supply by 10%.

Fund flows into U.S. corporates escalated throughout the week.  According to Wells Fargo, IG fund flows during the week of July 11-July 17 were +$4.8bln.  This brings YTD IG fund flows to +$158bln.  2019 flows to this juncture are up 6.1% relative to 2018.



(Bloomberg) After Times Square Goes Dark, NYC’s ConEd Faces More Heat

  • It lasted all of five hours — and hit just the spot on New York’s power system to take out the lights in Times Square, force the evacuation of Madison Square Garden in the middle of a Jennifer Lopez concert and bring parts of the city’s subway system to a screeching halt.
  • The Saturday evening blackout on Consolidated Edison Inc.’s grid — extending from about Fifth Avenue to the Hudson River and from the 40s to 72nd Street — was so widespread that it took out much of Midtown, Hell’s Kitchen, Rockefeller Center and the lower reaches of Manhattan’s Upper West Side. Now ConEd, already under fire because of other mechanical breakdowns in recent years, is facing renewed calls to overhaul its network.
  • The power failure struck on the anniversary of the historic 1977 blackout that led to widespread looting and other crimes across New York City. And it peeled back disparities between old technology and new: halted subways meant a $2.75 fare ballooned to a $57 Uber primed to surge pricing.
  • Just over six months ago, ConEd was facing an investigation after an electrical fire at a substation turned New York City’s night sky blue, temporarily disrupting flights and subway services. In July 2018, it was the subject of a probe after an asbestos-lined steam pipe ruptured in Manhattan’s Flatiron district. And a power failure in 2017 led to significant delays on the subway during a morning commute, triggering an investigation that cost the company hundreds of millions of dollars.
  • ConEd Chief Executive Officer John McAvoy told reporters late Saturday that the company would investigate the root cause of the event and “restore the system to a fully normal condition once we understand what exactly occurred.” He said the power failure didn’t appear to be weather-related. Hot weather typically sends power demand surging as people blast air conditioners.


 (WSJ) Cellphone Tower Companies Race Higher

  • As the biggest wireless companies in the U.S. prepare to bring 5G to more customers, cellphone-tower operators are shaping up to be big winners in the stock market. They could be ready to get another boost if or when the deal between T-Mobile US Inc. TMUS -0.37% and Sprint Corp. S +0.37% closes, some analysts say.
  • Shares of Crown Castle International Corp., American Tower Corp. and SBA Communications Corp. all hit records in 2019, and are currently up at least 20% from where they traded six months ago. Cellphone companies like Verizon, AT&T and T-Mobile pay these tower companies fees to use their high-up real estate.
  • A concern among some investors is that these companies soared too high too fast. Of the trio, only shares of SBA Communications have risen in the past month. Part of the reason for that is a slowdown in talks between T-Mobile and Sprint.
  • While final conditions for the merger deal remain to be seen, a key component of the Federal Communications Commission’s conditions is an accelerated 5G rollout in rural areas, UBS notes. That stands to benefit American Tower most, as about 65% of its macro portfolio covers the most rural part of the U.S., according to a research report by UBS last month that looked at the FCC’s antenna registration database of tower locations throughout the U.S.
  • Another potential overhang has been worries that private operators could be competition for these three big public tower owners as wireless carriers seek out lower rents. However, UBS’s report also found that the big three public tower companies remain the dominant players in a hot business, with the largest private owner of tower sites accounting for just about 2% of all towers. That bodes well for SBA Communications, American Tower and Crown Castle.
  • “While the private operators have increased their tower counts…this competitive threat is far more limited in practice at this time,” UBS said in its note.


(Bloomberg) A Leveraged Loan Collapses and Reveals Key Risk in Credit Market

  • Operating out of a Chicago suburb, in a low-slung, red-brick building wedged between a Hyatt and a Radisson, Clover Technologies is in the mundane business of recycling everything from inkjet cartridges to mobile phones.
  • But in the past week it abruptly — and alarmingly — caught the attention of Wall Street. Almost overnight, a $693 million loan Clover took to the market five years ago lost about a third of its value. The startling nosedive stung even sophisticated investors, people who deal in the arcane business of trading corporate loans.
  • Clover’s loan isn’t especially large by Wall Street standards, yet its stark and swift decline set off fresh alarm bells — bells that regulators have been sounding for months. It immediately became a real life example of the perils of investing these days in the $1.3 trillion market for leveraged loans, where a global chase for yield has allowed an explosion in borrowing and lax underwriting. In a market where trading can be thin — and at a time when illiquidity is suddenly becoming a prominent concern in credit circles — the episode shows how loans to highly leveraged companies can quickly implode when fortunes change.
  • Using the leveraged loan market as a wallet, the company took loans that funded dividend payments totaling at least $278 million — $100 million in 2013 and $178 million in 2014. (Portions of the overall proceeds went to shareholders as well as to refinance the company’s existing debt and certain fees, according to a Moody’s report.) Clover also asked lenders for a further $100 million in 2014 to pay for an acquisition.
  • Those loans, as is typically done, were bought mostly by mutual funds and collateralized loan obligations, which bundle such leveraged debt into higher-rated securities that are pitched to more risk-averse investors. There’s been little trouble finding buyers for CLOs in recent years. With yields on high-grade bonds hovering near zero across much of the world, investors have been hungry for the juicy returns that these loans offer and, more and more, tend to overlook the lack of protection afforded.
  • Moody’s now predicts a higher likelihood Clover will default on its debt obligations. The ratings agency cites concerns over long-term viability of the business and “unexpected” operational developments. Its debt is just over 6 times its earnings, a level that typically raises lender concerns about the company’s ability to meet its financial obligations. Another warning sign came in May when the company pulled a seemingly attractive refinancing plan that offered a high yield of nearly 9% with a short, three-year maturity.
  • Investors may recall similar blowups in the credit market. American Tire Distributors’ bonds and loans plunged into distress less than a month after it announced the loss of two key suppliers, Goodyear and Bridgestone. ATM-maker Diebold Nixdorf Inc. also saw its bonds fall to almost half their face value after it posted an unexpected second quarter loss.



07 Jun 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

It was a bit of a see-saw week in the corporate market as the tone was very heavy on Monday but sentiment turned decidedly more positive on Tuesday and remained so throughout the rest of the week.  The OAS on the corporate index opened the week at 128 and widened to 130 going into Tuesday morning but we sit back at the 128 level as we go to print on Friday morning.  The biggest story of the week is Treasury yields, which are lower across the curve for the second consecutive week.  The 10yr Treasury is over 5 basis points lower on the week and sits at its lowest level of 2019 and the lowest levels we have seen since September 2017.


$23.4bln in new corporate debt was brought to the market this week.  New issue concessions remain low, having averaged 3.5bps thus far in 2019 according to data compiled by Bloomberg.  Of course, every deal is different and some deals have enjoyed more substantial concessions than others.  Year-to-date corporate supply has crossed the half trillion mark and sits at $511.1bln, which lags 2019 issuance by over 9% according to data compiled by Bloomberg.

According to Wells Fargo, IG fund flows during the week of May 30-June 5 were +$6.2bln.  This brings YTD IG fund flows to +$125bln.  2019 flows to this juncture are up 4.8% relative to 2018.


(Bloomberg) Fiserv’s Expected Jumbo M&A Deal Makes an FX Pivot

  • A highly-anticipated Fiserv jumbo M&A bond deal never materialized Thursday as the company announced plans for a European roadshow, calling into question how big the dollar leg will be. Many had expected up to a $12 billion transaction funded solely in the U.S. currency. Meanwhile, two deals moved forward pricing $810 million.
  • While it didn’t bring a deal, Fiserv did, unexpectedly, announce a EUR and/or GBP roadshow just as Mario Draghi was declaring that the ECB won’t shy away from action to support the euro-area economy during a period of weakening growth. A dovish ECB and low rates potentially going lower may have contributed to Fiserv’s decision to test alternative currencies. We have seen a surge in reverse yankee issuance for exactly this reason
  • The stage seemed set for Fiserv to bring high-grade’s first jumbo deal since Bristol-Myers and IBM priced nearly $40b in acquisition-related funding for Celgene and Red Hat, respectively. Equity futures were in the black, IG CDX opened tighter and Wednesday’s two biggest deals from HCA and Parker-Hannifin were trading though new issue levels after achieving strong primary pricing outcomes. From an economics perspective, if you’re a believer in the correlation of ADP and nonfarm payrolls, Thursday offered a brief window ahead of a potentially weak jobs report. This, all amid an irrefutably stronger primary market backdrop that had steadily improved over the week.
  • Should Fiserv elect to predominantly tap the European debt capital markets it will be the second time in under a month that an issuer bringing an M&A deal has gone overseas for the majority of the funding. Fidelity National Services elected to fund just USD1b after launching EUR5b and GBP1.25b for their Worldpay acquisition. People with knowledge of the deal expected a much larger greenback portion. So much so that the USD-leg was more than 8 times oversubscribed in less than two hours.


 (Bloomberg) U.S. Payrolls, Wages Cool as Trade War Weighs on Economy

  • S. employers added the fewest workers in three months and wage gains cooled, suggesting broader economic weakness and boosting expectations for a Federal Reserve interest-rate cut as President Donald Trump’s trade policies weigh on growth.
  • Nonfarm payrolls rose 75,000 in May after a downwardly revised 224,000 advance the prior month, according to a Labor Department report Friday. The increase missed all estimates in Bloomberg’s survey calling for 175,000. The jobless rate held at a 49-year low of 3.6% while average hourly earnings climbed 3.1% from a year earlier, less than projected.
  • The dollar and Treasury yields fell as the data signaled the labor market — a pillar of strength for an economy headed for a record expansion — was facing new pressures even before Trump threatened tariffs on Mexican goods in addition to proposed higher levies on Chinese imports. Retail sales, factory output and home purchases have shown the economy struggling this quarter after better-than-expected growth in the first three months of the year.


(Forbes) Intel Charts A New Course With 10th Gen Core And Project Athena

  • Likely the most anticipated product that Intel revealed at Computex was its 10th Gen Core processors code-named Ice Lake. These 10th Gen Core processors utilize a new Sunny Cove CPU architecture and are built with Intel’s much awaited 10nm process node, which previously had some issues regarding yields that Intel claims are now resolved. Intel says these issues are behind them and that we can see volume production of 10nm with this 10th Gen of Core processors. These new Ice Lake processors also feature the new Gen11 graphics chip, which should elevate Intel’s performance in integrated graphics further to enable even better entry-level gaming. The 10th Gen Core processors announced at Computex range from Core i3 up to Core i7, with up to 4 cores and 4.1 GHz max turbo frequency. These processors target 2-in-1 and thin and light laptop form factors, so having a 4.1 GHz max turbo frequency AND 1.1 GHz GPU frequency is quite impressive.
  • Intel claims the Iris Plus graphics inside of the 10th Gen core processors (based on their Gen11 graphics) provide double the performance over the previous generation in some benchmarks. The company also claims double the HEVC encode performance, which should help with creative people wanting to do on-the-go video editing. Additionally, Intel claims double the FPS in 1080P games. While this would obviously be a pretty significant improvement, it will likely depend heavily on how the thermals are managed by the device manufacturer and over what period.
  • Intel also integrated both Thunderbolt 3 and Wi-Fi 6 into the 10th Gen Core processors, which is a pretty big deal for those who care about connectivity. Wi-Fi 6, formerly known as 802.11AX, is the future of Wi-Fi and will bring significant improvements to the quality of service, performance, and efficiency. Intel and others are doing the industry a favor by aggressively pushing the standard. Integrating Wi-Fi 6 will help to increase the adoption of Wi-Fi 6 and improve the user experience of PC users. The more users with Wi-Fi 6 devices on a Wi-Fi 6 network, the more efficient the network becomes. Everyone’s speeds (including non-Wi-Fi 6 users) go up. There are also coverage and quality benefits to Wi-Fi 6, but those are more dependent on the access point. Thunderbolt 3’s integration is also important because it is an incredibly versatile high-bandwidth interface that helps improve a device’s modularity with things like docks, displays, and drives.
  • OEMs will launch systems with the 10th Gen Core processors this holiday season, which is a bit later than one would expect with a May announcement. With the new process node and design principals, the 10th Gen Core processors are poised to usher the company into a new era.


(Bloomberg) Duke Energy Gets Nod From Indiana Regulator for Solar Pilot

  • Duke Energy received approval from the Indiana Utility Regulatory Commission for a pilot program that allows some customers lease solar energy facility from Duke for up to 20 years.
    • Initial capacity limited to total of 10 megawatts for customers
    • Duke installs, operates, owns and maintains facility
    • Customers receive all of the kilowatt-hour output of solar energy equipment through net-metering arrangement
17 May 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The tone in the credit markets was mixed this week.  The market felt heavy on Tuesday amid trade ramifications but by the time Thursday rolled around the tone was quite strong.  All told it looks as though we will finish the week relatively unchanged as far the spread on the index is concerned.  There are more negative headlines regarding China trade as we go to print on Friday which is leading to weakness in equity markets while Treasury’s are gaining.  The 10yr is modestly lower on the week and remains below 2.4% on Friday morning.


Just under $30bln in new corporate debt was brought to the market this week.  Demand for new issuance has been solid and thus concessions were low, in the neighborhood of 3-5 basis points for most deals.  Year-to-date corporate supply is up to $468bln, which lags 2019 issuance to the tune of -6.3% according to data compiled by Bloomberg.

According to Wells Fargo, IG fund flows during the week of May 9-May 15 were +$4.2bln.  This brings YTD IG fund flows to +$114bln.  2019 flows to this juncture are up 4.43% relative to 2018.

(Bloomberg) Bond Traders Need to Up Their Game as AI Systems Get Smarter

  • Money is pouring into artificial intelligence in bond markets, challenging bankers and investors to adapt their skills in everything from issuing to trading securities.
  • Fintech startup Nivaura is investing in technology to automate debt sales. Dutch bank ING Groep NV is improving systems to help traders buy and sell bonds, while AllianceBernstein Holding LP advanced its virtual assistant to identify notes that people miss.
  • After taking over stocks, computers are slowly overcoming resistance in one of the most technology-averse corners of financial markets. Bond traders are wary of a one-size-fits-all approach coming from equity markets, which are now largely automated. They say that human relationships are at the center of the market and clients want to talk through complex transactions.
  • AI has proved particularly useful in replacing manual tasks such as inputting data and executing small, liquid trades in markets such as currencies. It’s only just beginning in areas like corporate bonds, that traders call “high touch” for the traditional level of human involvement.
  • Still, proponents say tech is being used as a tool by people rather than a replacement for them and that it helps firms use human resources more efficiently.


 (Bloomberg) In a Tariff-Muddled World, U.S. Treasuries Send a Clear Message

  • Investors are wrestling with mixed U.S. data, underwhelming global growth, and an escalating trade war. While other asset classes have telegraphed optimism, sovereign debt is signaling a degree of caution, if not abject fear, about what comes next.
  • While U.S. stocks are barely down on the week through Thursday after collapsing on Monday, Treasury yields are decisively lower. Bund yields aresolidly sub-zero. Chinese sovereign debt is being heralded as a clear winner in the clash over cross-border commerce.
  • Another note of caution for Treasury bulls betting on an extension of the rally: expectations that the Federal Reserve is poised to ease – and perhaps materially – by the end of 2020 has helped juice the rally in longer-term debt. But patience – the central bank’s mantra – is almost definitionally incompatible with a proactively accommodative posture.
  • Even Minneapolis Fed President Neel Kashkari – arguably the most dovish member of the FOMC – does not think a so-called “insurance” rate cut is appropriate. A more hawkish member – Kansas City chief Esther George – thinks a rate reduction could fuel financial excesses.
  • If the market switched to betting the Fed will stay on hold this year, and if 10-year yields moved in lock-step with fed funds futures, then 10-year Treasuries would be north of 2.60% and trading closer to the 2019 highs than the trough.


(Bloomberg) Walmart Rallies on Plan to Pass on Cost of Tariffs to Consumers

  • Comparable sales for Walmart stores in the U.S. climbed 3.4% in the first quarter, its best for the period in nine years. Sales of groceries — Walmart’s biggest business — fueled the increase, and a later-than-usual U.S. flu season boosted health and wellness products. The shares rose as much as 4.1% Thursday in New York, the biggest intraday gain in almost three months.
  • Walmart’s response to potential higher levies will likely set the tone for other discount retailers, and its decisions on whether to pass along or absorb the additional costs will have ripple effects on American consumers. In its favor, Walmart’s clout with suppliers gives it more room to maneuver, and much of its food comes from U.S. sources, easing the impact.
  • “We will do everything we can to keep prices low, but increased tariffs lead to increased prices,” Chief Financial Officer Brett Biggs said in a Thursday morning interview. “It’s very item- and category-specific. There are some places where as we get tariffs, we will take prices up.” Finding alternative manufacturers “is one of a number of actions that our merchants are considering.”
  • Walmart’s response to potential higher levies will likely set the tone for other discount retailers, and its decisions on whether to pass along or absorb the additional costs will have ripple effects on American consumers. In its favor, Walmart’s clout with suppliers gives it more room to maneuver, and much of its food comes from U.S. sources, easing the impact.
  • “We will do everything we can to keep prices low, but increased tariffs lead to increased prices,” Chief Financial Officer Brett Biggs said in a Thursday morning interview. “It’s very item- and category-specific. There are some places where as we get tariffs, we will take prices up.” Finding alternative manufacturers “is one of a number of actions that our merchants are considering.”


10 May 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Amid a deluge of new issue supply and a weaker macroeconomic backdrop, we can finally say that the investment grade credit markets experienced a week of notable spread widening.  The spread on the corporate index closed Thursday at 116, 4 basis points wider on the week and 7 basis points off the lows from mid-April.  China trade headlines have dominated the tape this week which has led to volatility in the equity markets that has subsequently spilled over into the credit markets.  The impact to corporate credit has been relatively muted thus far but we would welcome short term bouts of volatility in our market as that has the potential to allow us to be more opportunistic in our purchases for the portfolios we manage.


$45.65bln of new corporate debt was issued this week led by Bristol-Myers and IBM.  On Tuesday, BMY printed $19bln in new bonds which at the time was the largest deal of 2019 and the 10th largest of all time.  BMY was bested by IBM a mere 24 hours later as Big Blue printed $20bln in new debt to fund its purchase of Red Hat, tied for the 7th largest bond deal of all time.  It is worth noting that, although CAM is a regular participant in the new issue market, we did not see value in either of these deals so we remained on the sidelines awaiting better opportunities.  $51.9bln of new corporate debt has been priced in the month of May and the year-to-date tally of new issuance is up to $439bln according to data compiled by Bloomberg.

According to Wells Fargo, IG fund flows during the week of May 2-May 8 were +$3.3bln.  This brings YTD IG fund flows to +$103.614bln.  2019 flows to this juncture are up 4% relative to 2018.

Bloomberg) IBM Sells $20 Billion of Bonds as Market Defies Trade Drag

  • International Business Machines Corp. sold $20 billion of bonds, propelling the corporate-debt market to its busiest week in at least eight months despite turbulence across asset classes worldwide.
  • The senior unsecured bonds will help fund the computer-services giant’s acquisition of Red Hat Inc. The longest portion of the offering, a 30-year security, will yield 1.45 percentage points more than Treasuries, after initial talk of around 1.55 percentage points, according to a person with knowledge of the matter, who asked not to be identified as the details are private.
  • The order book for IBM’s eight-part bond sale was just shy of $40 billion, suggesting some investor indigestion following Tuesday’s offering from Bristol-Myers Squibb Co. The drugmaker managed to sell $19 billion of bonds, one of the biggest sales of the year.
  • The U.S. investment-grade corporate bond market reached record highs on Tuesday, shrugging off the trade war fears that have weighed on stocks and oilthis week. High-grade issuance this week could top $40 billion, the most since September, according to data compiled by Bloomberg. High-yield issuers are also taking advantage of the frenzy — they collectively had their busiest day in three months.
  • More big bond offerings are coming. T-Mobile US Inc. and Fidelity National Information Services Inc. are expected to issue debt in the coming weeks to fund their respective acquisitions.
  • Companies are tapping the bond market to finance acquisitions after having shied away from that kind of issuance for much of the year. Just over $60 billion of investment-grade corporate debt was sold for that purpose in the first four months of the year, including about $2 billion in April, according to data compiled by Bloomberg. That’s out of $445.4 billion of total issuance over that period. Companies instead focused on selling bonds to refinance maturing securities and fund capital expenditure, among other corporate uses.
  • Bond-sale volume linked to acquisitions is increasing now in part because borrowing has grown even cheaper: the average high-grade company bond yielded 3.6% on Tuesday, according to Bloomberg Barclays index data, close to its lowest level since early 2018. The debt has gained 5.9% this year.



(Bloomberg) Boeing Sends 737 Max to Brand Rehab to Avoid Fate of Ford Pinto

  • Boeing Co.’s 737 Max is about to join the list of brands trying to come back from ignominy.
  • Analysts are digging into decades-old safety scares for clues to the future of the jetliner — and Boeing’s finances. There’s the Chevrolet Corvair rollovers that launched Ralph Nader as a consumer advocate in the 1960s, gas-tank explosions that sank Ford Motor Co.’s Pinto in the 1970s, and the Tylenol poisonings of 1982 that spurred tamper-proof packaging.
  • But there’s little precedent for the tangle of safety, regulatory and financial issues buffeting a workhorse jet that’s vital to sustaining the surge in global air travel. After two crashes of the aircraft model in five months and a grounding that’s nearing the two-month mark, some nervous passengers are vowing to avoid the Max. Boeing has added to the mess by not fully explaining the apparent flaws in the best-selling jet in company history.
  • Longtime Boeing watcher Nick Cunningham said he’s starting to wonder if “this has become too serious and too protracted for the Max to escape unscathed.” The accidents in Indonesia and Ethiopia killed 346 people. Nader’s own grand niece was among the victims.
  • The longer the crisis drags on, the greater the risk that the cumulative effect “will have acted to permanently lock it into people’s memories,” said Cunningham, founding partner at Agency Partners.
  • Boeing is finalizing an update to software linked to both crashes, which it will submit to the Federal Aviation Administration in a crucial step toward getting the plane back in the air. A May 23 summit of global regulators “may lay out a path towards certifying fixes and removing the grounding,” Morgan Stanley analyst Rajeev Lalwani said in a note Thursday.
  • Rebuilding consumer confidence is an urgent priority, as the Chicago-based company works with airlines to prepare resuming flights of the 737 model over the next few months. Boeing must also win over pilots, flight attendants and fractious regulators.


(Bloomberg) Chevron’s Mr. Discipline Sizes Up Costs as Anadarko Bid Ends

  • Chevron Corp. Chief Executive Officer Mike Wirth’s decision to abandon his $33 billion offer for Anadarko Petroleum Corp. bolsters his reputation as one of the oil industry’s consummate financial disciplinarians.
  • Anadarko was looking for Chevron to beat or at least match Occidental Petroleum Corp.’s $38 billion proposal, people familiar with the matter said Wednesday. But Wirth, whose deputies already had held integration meetings with counterparts at Anadarko, declined to escalate the bidding war and bowed out on Thursday.
  • “Make no mistake about it, we had the financial capacity to easily outbid Occidental,” Wirth said in an interview. “But an increased offer would have eroded value to our shareholders and would have diminished returns on our capital. We’re serious about being disciplined.”
  • The decision to cede Anadarko to a rival one-fifth of its size would have been unthinkable even five years ago, in the heady days of $100 a barrel oil when the world’s largest energy companies were focused on growth at almost any cost. But the crude price collapse, ascendance of of shale and a recognition that big deals often destroy shareholder value has changed Big Oil’s mindset.



26 Apr 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The investment grade credit market traded sideways this week as the OAS on the corporate index looks to finish relatively unchanged.  Spreads continue to remain near their tightest levels of 2019 which has been the case since mid-April.  It was a busy week for earnings and it was feast or famine for some large-cap firms.  Companies like Microsoft and Amazon produced some exceptional results while on the other hand Intel and 3M had lackluster earnings prints.  On the Treasury front, rates are lower by 3-5 basis points across the curve on the back of an economic release that showed inflation measures are slowing.

It was an extremely quiet week for corporate issuance as companies brought just $5.65bln of new corporate bonds.  Earnings blackout periods will likely continue to have an impact on issuance for the next several weeks.  $50.8bln of new corporate debt has been priced in the month of April and the year-to-date tally of new issuance is up to $371bln according to data compiled by Bloomberg.

According to Wells Fargo, IG fund flows during the week of April 18-April 24 were +$6.7bln, which was the second largest weekly inflow thus far in 2019. This brings YTD IG fund flows to +$97.6bln.  2019 flows to this juncture are up 3.8% relative to 2018.



(Bloomberg) A 48-Hour Reporting Delay Could Be Coming for Corporate Debt

  • The Financial Industry Regulatory Authority will likely test the market impact of delaying the disclosure of large corporate bond trades after some of the biggest investors argued that such a move would improve liquidity.
  • Finra last week proposed running a pilot program that would give traders 48 hours before having to reveal their so-called block trades to other investors. The effort would allow the industry-funded brokerage regulator, which is overseen by the U.S. Securities and Exchange Commission, to evaluate how delayed transparency might affect corporate bond trading.
  • Current rules require that block trades be reported within 15 minutes. Brokers and investment firms such as BlackRock Inc. and Pacific Investment Management Co. have long said that such rapid disclosure can make it harder for a dealer to offload securities it’s bought, because market participants know exactly what was bought and at what price.
  • The idea for the pilot was suggested by a group of industry executives that advises the SEC. The Securities Industry and Financial Markets Association, Wall Street’s biggest trade group, has expressed support for the proposed test as did JPMorgan Chase & Co. and Eaton Vance, according to Finra. At the same time, the regulator said that two market makers for exchange-traded funds have expressed concern that the changes would reduce price transparency.


(Bloomberg) Wall Street Said to Accelerate Shake-Up in Market for New Bonds

  • Wall Street is moving closer to modernizing the clubby $2 trillion market for new corporate bond issues while seeking to retain control of a lucrative business that’s being eyed by the tech sector.
  • A group of banks led by Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co., has set up a company and appointed a chief executive officer to develop an electronic system for investors to request allocations of new debt, according to people familiar with the matter.
  • Other banking heavyweights including Barclays Plc, BNP Paribas SA, Deutsche Bank AG, Goldman Sachs Group Inc. and Wells Fargo & Co. have also joined the founders in backing the platform that was originally conceived more than a year ago, the people said, asking not to be identified because it isn’t public.
  • Bloomberg talked to 10 people familiar with the initiative. While many of its details are yet to be finalized, Bloomberg reported a year ago the banks plan to focus initially on U.S. investment-grade bonds.
  • The new system, dubbed Project Mars, aims to modernize the process of buying new corporate bonds, streamlining communication in a market that still relies on phone calls, instant messaging and emails to handle billions of dollars in orders from investors.
  • Investors have pushed banks for years to streamline the market and make it more transparent amid mounting frustration at current practice where they often over-order to secure a quota of bonds that’s close to what they want. Bond allocation has become a high-stakes game, as demonstrated by Saudi Aramco’s recent $12 billion deal which saw investors place orders for more than $100 billion.


(Bloomberg) Ford Shares Surge After Q1 Earnings Beat as U.S. Sales Offset Global Weakness

  • Ford Motor Co. shares were traded sharply higher Friday after the carmarker posted stronger-than-expected first quarter earnings thanks to a surge in U.S. demand for its iconic pick-up trucks that offset weakening international demand.
  • Ford said earnings for the three months ending in March rose nearly 52% from the same period last year to a forecast-beating 44 cents a share even as total revenues edged 3.9% lower to $40.34 billion as key markets in China continue to weaken.
  • S. sales, however, held steady at $25.4 billion. with healthy demand for trucks and SUVs in the company’s home market providing $2.2 billion of its overall $2.4 billion in operating earnings for the quarter.


(Bloomberg) U.S. Growth of 3.2% Tops Forecasts on Trade, Inventory Boost

  • S. economic growth accelerated by more than expected in the first quarter on a big boost from inventories and trade that offset slowdowns in consumer and business spending, bolstering hopes that growth is stabilizing after its recent soft patch.
  • Gross domestic product expanded at a 3.2 percent annualized rate in the January-March period, according to Commerce Department data Friday that topped all forecasts in a Bloomberg survey calling for 2.3 percent growth. That followed a 2.2 percent advance in the prior three months.
  • But underlying demand was weaker than the headline number indicated. Consumer spending, the biggest part of the economy, rose a slightly-above-forecast 1.2 percent, while business investment cooled. A Federal Reserve-preferred inflation measure, the personal consumption expenditures price index excluding food and energy, slowed to 1.3 percent, well below policy makers’ 2 percent objective.

(Bloomberg) Occidental’s $38 Billion Anadarko Offer Starts Permian Fight

  • After being rebuffed several times, Occidental Petroleum Corp. on Wednesday made public a $38 billion offer to buy Anadarko Petroleum Corp., seeking to break up a proposed takeover by Chevron Corp. The $76 per share cash-and-stock bid for The Woodlands, Texas-based oil and natural gas producer is 20 percent more than Chevron’s $33 billion April 12 agreement.
  • For Occidental, which has a market value of about $46 billion, the acquisition would be its largest ever and the biggest purchase of an oil producer anywhere in at least four years. It would pull together two second-tier oil and natural gas producers, as opposed to Chevron’s bid to create another “ultramajor” to rival Exxon Mobil Corp. It would require Anadarko to pay a $1 billion breakup fee to Chevron.
  • In an email, Chevron spokesman Kent Robertson said the company was “confident the transaction agreed to by Chevron and Anadarko will be completed.”
  • A tie-up would help Occidental maintain its leading position in the Permian Basin of West Texas and New Mexico, where it currently faces being overtaken by Chevron, which has ambitious growth plans for the region. The Permian is the world’s fast-growing oil major patch and has helped to turn the U.S. into a net exporter, also making it a bigger producer than Saudi Arabia.
  • Chief Executive Officer Vicki Hollub said in a Bloomberg Television interview that the offer is the same it made to Anadarko in January 2018. The company has also made three bids since late March, she said Wednesday in a letter to Anadarko’s board of directors. Occidental said it has completed its due diligence on the deal and has financing lined up with Bank of America Merrill Lynch and Citigroup Inc.
12 Apr 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The investment grade credit market continues to benefit from the euphoria of risk-on sentiment that is flooding the capital markets.  The OAS on the index closed Thursday at its tightest level of the year.  Segmenting the index out by quality, both the A-rated portion of the index and the BBB-rated portion are now trading at year-to-date tights.  The market also feels quite strong as we go to print on Friday morning and it looks likely that the corporate bond index will close the week even tighter still.  On the Treasury front, rates are higher across the curve, with the 5yr Treasury up 6 basis points over the past week and the 10yr Treasury up 5 basis points.

Corporate issuance was somewhat muted as borrowers brought just $10.15bln of new debt during the week.  Corporate issuance is likely to remain light in the weeks to come as many companies are now in earnings blackout periods.  The big story of the week on the new-issuance front was non-corporate borrower Saudi Arabian Oil Co, which priced $12bln of new debt across 5 tranches.  The Saudi bonds were soaked up by yield chasers across the globe on no other analysis other than it was “cheap for the rating.”  According to Bloomberg, the order book for the new issue was allegedly in excess of $100bln which is quite strong relative to the $12bln size of the deal. However, all 5 tranches of debt immediately traded wider on the break and all remain wider on the bid side as we go to print.  The 10yr tranche in particular is sucking wind, and is currently bid at +120 in the street versus its new issue pricing level of +105.  This leads us to believe that demand for this deal may have been overstated, possibly by an order of magnitude.  $26.2bln of new corporate debt has been priced in the month of April and the year-to-date tally of new issuance is up to $346bln according to data compiled by Bloomberg.

According to Wells Fargo, IG fund flows during the week of April 4-April 10 were +$8.7bln. This brings YTD IG fund flows to +$81bln.  2019 flows to this juncture are up 2.6% relative to 2018.