Mr. Faunce joined The Penn Mutual Life Insurance Company in September 2014 as a Senior Corporate & Municipal Security Specialist. Mr. Faunce is responsible for the analysis of municipal and corporate credit securities with a particular focus on the utility sector.
Prior to joining Penn Mutual, Mr. Faunce was a Portfolio Manager, Trader and Credit Analyst for Aberdeen Asset Management from 2000 to 2014. In this capacity Mr. Faunce managed the municipal credit exposures in the Core products as well as the Tax-Free Fund when considering risk profile and guideline constraints. Prior to that Mr. Faunce worked at Harleysville Asset Management and Miller Anderson & Sherrerd, LLP.
Mr. Faunce graduated in 1989 from Ursinus College with a Bachelor of Science degree in Business Administration.
James has been a Chartered Financial Analyst (CFA) Charterholder since 1998.
Long end corporate credit spread curves have been somewhat range bound in recent weeks off the tights experienced in late January. The January print for the 10-year to 30-year curve… Read More
Despite somewhat stable credit spreads, the rates sell-off in 2018 is causing investment grade corporate bond total returns to have the worst start to a year in two decades, as… Read More
Junior subordinated hybrid debt and perpetual preferred stock issuance jumped meaningfully for midstream issuers in the second half of 2017, as this week’s chart demonstrates. The midstream sector, dominated by… Read More
As the cycle progresses further into its late stages, upward rating migration may continue due to improving fundamentals, operational enhancements, and active balance sheet repair. After spending a good portion of the past year repairing their balance sheets through asset sales and debt pay downs, energy companies have been the prime beneficiaries of positive rating actions in 2017. According to Barclays, of the credits that have seen upgrades into investment grade year to date, a full 60% of the volumes have occurred in the energy sector. Credits outside the commodity related sectors have only represented 30% of total volumes and those were largely driven by credit specific factors.
Since the financial crisis, investment grade corporate bond trading volumes have almost doubled. 2017 volumes are projected to total $4.1 trillion, compared to $2.1 trillion in 2007. However this doesn’t tell the whole story – the size of the overall market has tripled over this time period. As a result, liquidity, measured as volumes relative to the overall market, is down quite meaningfully. Today’s chart shows that volumes currently represent 86% of the market while in 2007 they came in at over 120%. This steady decline is due to numerous factors, but a large contributor is the increased regulatory oversight, most notably the Volcker rule which has limited bank investment capabilities.
For the last several years, we have noted the extremely strong technical backdrop supporting investment grade (IG) corporate credit spreads. With the global rate environment extraordinarily depressed from prolonged accommodative central bank policies around the world, investors have diligently been seeking yield. In fact, with the 2016 launch of the European Central Bank’s (ECB) Corporate Sector Purchase Program (CSPP) for eligible euro-denominated corporate debt, the universe of corporate credit opportunities has become even smaller, keeping spreads very firm globally.
Many of us traveled this past Memorial Day Weekend to spend time with family and friends, and more importantly, honor all of those who have served our country so bravely. I imagine that more than a few of us utilized one of the many toll roads across the U.S. in our travels. While you may have had to skillfully maneuver around potholes in the roadway, you can take comfort in the fact the financial health of our toll roads is riding high.
Over the last several years, there has been a rather large shift in the amount of gross leverage corporate credits have been willing to endure. Today’s chart shows over 50% of investment-grade corporate debt in the JPMorgan non-financial universe had gross leverage under two times EBITDA* at the end of 2012. By the end of 2016, this fell substantially to 20% of the universe. At the other end of the spectrum, this period saw debt levered over four times EBITDA go from 11% to 25%.
Institutional yield buyers in the fixed income credit markets have been waiting a long time for Treasury rates and absolute yields to increase. Since rates hit lows last summer, it appeared that the move higher in yields was finally going to materialize, particularly following the election results in which 10- and 30-year Treasury rates rose almost 80 basis points (bps). However, the very strong tightening in credit spreads has flattened the industrial credit curve quite substantially. As a result, despite the back-up in long Treasury rates, the all-in yield for long industrial credit has been largely offset.
The tax exempt municipal market is poised to confront many challenges in 2017. The market will need to adjust to a new environment in terms of policy, governance, rates and volatility. The November 2016 election results have highlighted the real possibility of change and the tax exempt municipal market reacted with heightened volatility in the weeks following the election.
