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Credit Markets: Throwing Caution to the Wind

By Scott Ellis | July 20, 2017

Many investors are struggling to find attractive investment opportunities in today’s environment. One can choose from waiting on the sidelines in cash, investing in government bonds (10-year U.S. Treasuries 2.3%), investment grade bonds (+105 basis points (bps) in the U.S.), high yield bonds (+439 bps in the U.S.) or equities (S&P 500 Index is up ~10% year-to-date) and other more esoteric and less liquid investments such as private equity, venture capital and real estate. Central bankers around the world have been using their balance sheets to buy the most liquid and least risky investments, and as a result, bringing the yields down significantly. Because of this, investors have been moving further down the risk spectrum in hopes of attaining the same returns they once were able to achieve. The central bankers’ actions have left other investors to fight for the remaining investable assets.

Earnings Heat Up This Week

By David O'Malley | July 17, 2017

Second quarter earnings will receive significant attention this week, as stocks pushed to new highs on the S&P 500 Index last week. Expectations for solid earnings reports have been growing over the past few weeks and are necessary to keep stocks grinding higher.

Misery Index on Track for New Lows

By Mark Heppenstall | July 13, 2017

The Misery Index, developed in the 1960s by Yale University economist Arthur Okun, has been a widely followed measure of national economic performance. The Index is calculated by simply adding together the trailing 12-month inflation rate and current unemployment rate. This week’s chart shows a 70-year history of the Misery Index in the U.S.

Bond Yields Rise Around the Globe

By David O'Malley | July 10, 2017

Bond yields have been rising around the globe for the last few weeks as central bankers discuss the continued normalization of monetary policy. The unprecedented monetary policy used since the financial crisis in 2008 is slowly being removed. Despite the reduction in stimulus, monetary policy is still accommodative. I expect the trend of rising rates will continue over the next few months as the supply and demand equation for debt is being reevaluated amid less support from central banks.

30-Year Swap Spreads Get a Boost Wider from Capital Relief

By John Swarr | July 6, 2017

Second quarter U.S. dollar (USD) interest rate markets were very unexciting when looking at absolute movements in both swap rates and Treasury yields. However, an interesting development arose concerning the relative movement between the 30-year points of these two curves that will likely have the attention of market participants through the end of the year. The 30-year swap spread – defined as the difference between the 30-year swap rate and 30-year Treasury yield – has widened (or become less negative) significantly since June 13th, when the Treasury released its recommendations for financial industry reform, including a proposal to remove U.S. Treasuries (USTs) from the denominator of the supplementary leverage ratio (SLR) calculation. This proposal would effectively make USTs “cheaper” for banks to hold from a capital requirement perspective.

Happy Fourth of July!

By David O'Malley | July 3, 2017

Wishing you and your family a happy and healthy Fourth of July holiday weekend! We will be back with a Chart of the Week post on Thursday, July 6.

A New Normal in Collateralized Loan Obligation Reinvestment Periods

By Jason Merrill | June 29, 2017

June 2017 has been a banner month for the new issue of collateralized loan obligations (CLO) when including all three new issue types of regular way, resets, and refinancings. This month has seen 26 regular way, 18 reset and 18 refinancing deals marketed by the Street, totaling $30 billion across 62 deals. Based on our observations, Citi, Bank of America Merrill Lynch and J.P. Morgan have led the league table for the month, and investor demand in the space continues to be healthy.

Waiting for the Healthcare Vote

By David O'Malley | June 26, 2017

The week ahead has limited economic data. Durable goods were down 1.1% for May and likely fell on weaker demand for airplanes. Personal Income will be reported on Friday, and I expect it will likely remain solid, as there is not much employment slack left in the economy.

The Business Cycle Extends

By Greg Zappin | June 22, 2017

The current business cycle has become one of the longest on record, and based on our intermediate-term outlook, it could end up rivaling the 1991-2001 period in terms of its duration. Interestingly, because of the muted nature of the recovery and broader deleveraging that has occurred, the excesses that typically build as growth accelerates have not emerged, and therefore the current credit cycle is less extended.

Beware of a Flattening Yield Curve

By David O'Malley | June 19, 2017

In a much anticipated move last week, the Federal Reserve (Fed) increased short-term interest rates by 25 basis points (bps). The Fed also outlined parameters for shrinking its $4.5 trillion balance sheet. Once the process begins, it is expected to take at least four years to reduce the balance sheet by approximately $2-2.5 trillion.

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