Category: Investment Grade Weekly

11 Mar 2022

CAM Investment Grade Weekly Insights

Spreads are wider week over week in what seems to have become a recurring theme.  The tone of the market is mixed as we go to print this Friday afternoon but market participants remain wary of risk.  Geopolitical turmoil in Europe remains at the forefront but there have been other challenges and there are more ahead –the market survived the highest CPI print in over 40 years on Thursday morning and all eyes are looking toward the FOMC meeting next Wednesday.  The OAS on the Bloomberg US Corporate Bond Index closed at 141 on Thursday, March 10, after having closed the week prior at 130.  The Investment Grade Corporate Index had a negative YTD total return of -7.9% through Thursday.  The YTD S&P500 Index return was -10.6% and the Nasdaq Composite Index return was -16.1%.

The primary market had its 8th busiest week on record and volume will approach $70bln by the end of the week.  Magallanes, which is the WarnerMedia SpinCo for assets that AT&T is selling to Discovery Communications, led all issuers this week with a $30bln debt deal across 11 tranches.  This was the fourth largest bond offering in history.  Next week should continue to see a brisk pace of issuance as it is well known that Oracle will soon be in the market to finance its acquisition of Cerner and there are other issuers waiting in the wings as well.  We have mentioned this in previous notes but it bears repeating; even amid widening spreads, geopolitical uncertainty and a pivot in Fed policy, the investment grade new issue market remains wide open and the secondary market is showing signs of good liquidity and two-way flow with low transaction costs.

Per data compiled by Wells Fargo, flows for investment grade were negative on the week.  Outflows for the week of March 3–9 were -$4.7bln which brings the year-to-date total to -$19.3bln.

04 Mar 2022

CAM Investment Grade Weekly Insights

For the second consecutive week, spreads will finish a Thursday evening at the widest levels of the year.  The tone of the market is also feeling heavy this Friday morning as we got to print amid geopolitical fallout from Europe.  The prospect of a nuclear incident at a Ukrainian facility is not something the markets are taking lightly. On the domestic front, the Friday morning jobs report showed that U.S. hiring was strong in February with employment numbers handily beating consensus estimates along with an unemployment rate that edged lower, to 3.8%.  This news likely keeps the Federal Reserve on track to begin its hiking cycle at its meeting later this month.  The OAS on the Bloomberg US Corporate Bond Index closed at 125 on Thursday, March 3, after having closed the week prior at 121.  The Investment Grade Corporate Index has posted a negative YTD total return of -5.8% through Thursday.  The YTD S&P500 Index return was -8.4% and the Nasdaq Composite Index return was -13.5%.

The primary market was extremely active this week with 31 deals totaling over $53bln with at least one deal pending on Friday that will add to this total.  This speaks to the resiliency of the investment grade credit market– even amid geopolitical uncertainty; the market remains open for business in a big way.  Next week’s consensus forecast is calling for things to remain busy with predictions of more than $40bln in new issue.  March is typically a seasonally busy month for issuance and it appears that 2022 is no exception.

Per data compiled by Wells Fargo, flows for investment grade were negative on the week.  Flows for the week of February 24–March 2 were -$2.1bln which brings the year-to-date total to -$14.7bln.

25 Feb 2022

CAM Investment Grade Weekly Insights

Spreads finished Thursday of this week at their widest levels of the year but there has been a significant retracement through Friday morning.  The first half of the trading day on Thursday was extraordinarily weak with poor performance for risk assets as investors digested the news out of Europe before equities and credit staged a stunning reversal that afternoon.  The OAS on the Bloomberg US Corporate Bond Index closed at 124 on Thursday, February 25, after having closed the week prior at 118.  Investment grade has posted its worst start to a year ever with the Corporate Index down -6.5% total returns through Thursday.  The YTD S&P500 Index return was -9.77% and the Nasdaq Composite Index return was -13.69%.

The primary market was less active than expected this week with the backdrop of geopolitical tensions but investment grade companies still managed to issue $18bln of new debt.  Next week’s consensus forecast is calling for more than $25bln in new issue and some sell side prognosticators are predicting an extremely busy calendar for March with as much as $175bln+.  There are some jumbo deals waiting in the wings that could print next month which could balloon that figure even further.

Per data compiled by Wells Fargo, flows into investment grade were modestly positive on the week.  Flows for the week of February 17–23 were +$0.4bln which brings the year-to-date total to -$12.7bln.

10 Dec 2021

CAM Investment Grade Weekly Insights

Spreads will finish the week tighter, reclaiming some ground after having experienced headwinds in the week prior which saw the index close two days at 101 –its widest level of 2021.  The OAS on the Bloomberg US Corporate Bond Index closed at 96 on Thursday, December 9, after having closed the week prior at 100.  Treasury volatility has been a common theme in recent weeks and this week was no exception.  The 10yr Treasury is 1.47% on Friday morning after having closed last week at 1.34%.  Through Thursday, the Corporate Index had posted a year-to-date total return of -1.26% and an excess return over the same time period of +1.25%.  The Federal Reserve is currently within its blackout period as the market patiently awaits the next FOMC decision on Wednesday of next week.

 

 

The primary market was active this week with Merck leading all issuers with an outsize $8bln print.  In all, over $38bln in new debt was brought to market during the week.  This month can be seasonally slow but that has not been the case this year with a record breaking amount of new issuance during the month of December ($61.7bln) which is impressive to be sure given we are not yet half  way through the month. According to data compiled by Bloomberg, $1,411bln of new debt has been issued year-to-date.  2021 has firmly secured its place in history as the 2nd busiest year for issuance on record but it still trails 2020’s record breaking volume by almost 20%.  Issuance consensus estimates for next week are calling for only $5bln but we are skeptical and would not be surprised if Monday and Tuesday bring some activity.  Wednesday is likely to be very quiet with the FOMC on the tape.

Per data compiled by Wells Fargo, flows into investment grade credit for the week of December 2–8 were +$0.885bln which brings the year-to-date total to +$321bln.

05 Nov 2021

CAM Investment Grade Weekly Insights

Spreads inched tighter throughout the week.  The OAS on the Blomberg Barclays Corporate Index closed at 86 on Friday, November 5, after having closed the week prior at 88.  On Wednesday, in a move that was widely anticipated, the Federal Reserve proceeded with the implementation of its plan to gradually taper the pace of asset purchases. Treasury yields moved lower after the FOMC meeting with the yield on the 10yr Treasury finishing the week at 1.45%, 10 basis points lower from its close the week prior.  Even a solid payrolls report with an upward revision to prior data was not enough to stem the rally in rates.  Through Friday, the Corporate Index had posted a year-to-date total return of -0.14% and an excess return over the same time period of +2.06%.

The primary market saw another somewhat active week with $20bln in new debt having been brought to market.   According to data compiled by Bloomberg, $1,258bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, outflows from investment grade credit for the week of October 28–November 3 were -$0.280bln which brings the year-to-date total to +$313bln.  This marked the first outflow since March and only the second recorded outflow in the past calendar year.

08 Oct 2021

CAM Investment Grade Weekly Insights

Spreads look to finish the week unchanged as Treasury yields inch higher.  The OAS on the Blomberg Barclays Corporate Index closed at 85 on Thursday October 7 after having closed the week prior at 84 but the market is trading tighter as we go to print mid-morning on Friday October 8.  Treasury yields have moved higher with each passing day throughout the week with the yield on the 10yr Treasury now above 1.6%, 14 basis points higher than where it finished the previous week.  Some of the move higher can be attributed to the payroll report on Friday morning, with early market commentary seeming to indicate it was “just barely okay enough” for tapering to begin as soon as the Fed meets in November.  However, it is worth noting that this was a big miss as payrolls increased by just 194,000 in September versus the 500,000 estimate – the smallest payroll gain thus far in 2021.  Through Thursday, the Corporate Index had posted a year-to-date total return of -1.67% and an excess return over the same time period of +1.82%.

 

 

The primary market saw good activity during the week with $27.6bln in new bonds having been brought to market.   Activity is likely to slow as earnings season begins and estimates are calling for around $15bln next week.  According to data compiled by Bloomberg, $1,149bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of September 30–October 6 were +$804mm which brings the year-to-date total to +$305bln.

27 Aug 2021

CAM Investment Grade Weekly Insights

Spreads are set to finish the week tighter, reclaiming the move wider that occurred the week prior.  The OAS on the Blomberg Barclays Corporate Index closed Thursday August 26 at a spread of 88 after having closed last week at 91 –spreads are relatively unchanged as we go to print on Friday afternoon.  The yield on the 10yr Treasury moved higher throughout the week and is trading at 1.31% at the moment, 6 basis points higher than it closed the previous week.  Through Thursday, the Corporate Index had posted a year-to-date total return of -0.55% and an excess return over the same time period of +1.46%.

It was a very slow week for corporate issuance with just $3bln in volume.  This is quite typical for this time of year and we expect more of the same next week before the spigot gets turned back on after the Labor Day holiday. According to data compiled by Bloomberg, $962bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of August 19–25 were +$5.9bln which brings the year-to-date total to +$270bln.

06 Aug 2021

CAM Investment Grade Weekly Insights

Spreads are set to finish the week wider to the tune of 1-2 basis points.  The OAS on the Bloomberg Barclays Corporate Index closed Thursday August 5 at a spread of 88 after having closed the week prior at 86.  We are going to print amid a positive market tone on this Friday morning after a strong unemployment report.  The yield on the 10yr Treasury traded higher this week but most of that move occurred this morning after the aforementioned employment report.  The 10yr closed last week at 1.22% and is trading at 1.28% at the moment.   Through Thursday, the Corporate Index had posted a year-to-date total return of +0.08% and an excess return over the same time period of +1.54%.

 

 

It was the busiest week for the new issue market in over 2 months according to Bloomberg, as weekly volume eclipsed $32bln.  Next week should also see brisk issuance before things slow down at the end of August for the last salvo of summer vacations. According to data compiled by Bloomberg, $909bln of new debt has been issued year-to-date.

We have seen more of a two-way flow in the market the past several weeks.  The reopening trade has lost some steam as investors weigh the risks of the delta variant.  For most of 2021, credits levered to reopening were in the midst of a one-way trade to tighter spreads and lower yields but those credits have seen mixed and in some cases poor performance in recent trading sessions.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of July 29–August 4 were +$5.7bln which brings the year-to-date total to +$247bln.

 

02 Jul 2021

CAM Investment Grade Weekly Insights

Spreads continued to trade sideways this week, having exhibited little change, though the index itself did hit a new mark for its tightest level of the year when it closed Wednesday at a spread of 80.  The OAS on the Blomberg Barclays Corporate Index closed Thursday July 1 at a spread of 81 after having closed at the same level the week prior.  The 10yr Treasury traded slightly lower throughout the week and a payroll report on Friday that modestly beat expectations did nothing to change the direction of that trade.   Through Thursday, the Corporate Index had posted a year-to-date total return of -1.34% and an excess return over the same time period of +1.97%.

New issuance volume was light during the week which was expected given the timing of quarter end and the 4th of July holiday.  $11.9bln of new debt was priced during the week, with the bulk of that consisting of an outsize $8bln print by Salesforce.  According to data compiled by Bloomberg, $790bln of new debt has been issued year-to-date.   Consensus estimates are looking for $15-20bln of issuance next week, which will consist of only 4 trading days.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of June 24–30 were +$3.5bln which brings the year-to-date total to +$208bln.

Have a safe and enjoyable 4th of July.

 

 

 

18 Jun 2021

CAM Investment Grade Weekly Insights

Spreads touched their narrowest levels of the year this week but are slightly wider off those tights as we go to print this Friday morning.  The OAS on the Blomberg Barclays Corporate Index closed Thursday at 82, after closing the previous week at 84.  Spreads have traded in a 5 basis point range over the course of the past four weeks.  The FOMC took center stage with its meeting and commentary on Wednesday, and while most investors would agree that the Fed was more hawkish this week than it has been recently, it had little effect on Treasuries, with the biggest story being lower rates on the long end and flatter curves.  The 10yr Treasury remains wrapped around 1.46%, nearly 30 basis points lower than the highs we saw at the end of March.   Through Thursday, the Corporate Index had posted a year-to-date total return of -1.74% and an excess return over the same time period of +1.88%.

 

 

The amount of new issuance in recent weeks has been solid by historical standards but demand has been strong and frankly the market could use some more issuance to restore some two-way flow to its price action.  $22bln of new debt priced during the week  according to data compiled by Bloomberg and more than  $757bln of new debt has been issued year-to-date.

Per data compiled by Wells Fargo, inflows into investment grade credit for the week of June 10–16 were +$10bln which brings the year-to-date total to +$203bln.  According to Wells data compilation, this was the largest inflow into IG funds since September.