By Mark Heppenstall | September 7, 2017
This week’s chart highlights the dramatic shift in credit quality for the corporate bond market during the past 30 years. Investment grade rated corporations have been on a 30-year borrowing binge judging by the increasing weight of BBB-rated credits in the Bloomberg Barclays Corporate Index. U.S. companies are taking advantage of lower and lower borrowing costs and embracing the use of higher leverage. Nearly half of the index is made up of BBB credits today ─ double the level from 30 years ago. Despite more than 60 companies being rated AAA in the 1980s, only Johnson & Johnson and Microsoft remain as the two U.S. companies with the top rating.
By Jason Merrill | August 24, 2017
In spite of domestic political unrest and continued geopolitical uncertainty, the markets have enjoyed a surprising amount of stability since September 2016. Spreads have continued to grind tighter and tighter, begging the question, “how low can you go?” When spreads are at the tights across most sectors, cross-sector relative value becomes a more important form of differentiation between investments – and definitely more interesting during a summer of weak supply and low market volatility!
By Greg Zappin | August 17, 2017
Despite criticism for acting too slow or being backward looking, rating agencies and the credit ratings they assign are still relevant in the corporate bond market today. Ratings trends can be a useful, albeit imperfect, tool to access over credit quality in the market and sometimes offer a source of alpha if future ratings direction can be correctly anticipated. Non-financial credit ratings are based on fairly transparent criteria, particularly the leverage and profitability metrics. It’s the qualitative judgments about competitive position, industry dynamics and financial policy that are grey areas. While new issue ratings have proven to be an accurate gauge of default risk over time, the timing of subsequent ratings actions is a big market gripe. Ratings are meant to look through cycles, which can create big gaps between an issuer’s ratings and bond pricing and current fundamentals.
By Mark Heppenstall | June 17, 2016
The opportunity to earn return-free risk was taken to new heights last week with Toyota Finance Corporation’s issuance of 3-year Yen-denominated bonds yielding 0.001%.
By James Faunce | April 28, 2016
Corporate mergers and acquisitions (M&A) continue to be a significant driver of the investment grade corporate bond market new issue calendar. As shown in today’s chart, M&A activity made up almost 35% of non-financial issuance in 2015, making it an all-time record total supply year. 2016 is on a similar pace.
By Jen Ripper | March 17, 2016
The S&P 500 and Dow Jones Industrial Average indices have, over the past four weeks, retraced 90% and 88% of the move over the first six weeks of the year, while corporate spreads have not only recouped their losses but have now tightened on a year-to-date basis. Meanwhile, commercial mortgage backed securities (CMBS) cash markets have remained largely unchanged.
By David O'Malley | February 8, 2016
The tone of the market last week was very concerning to me. The momentum darlings of 2015 are now starting to lead the declines in 2016. Even more concerning than the current equity volatility is what is happening in the fixed income credit markets.
By Greg Zappin | January 14, 2016
In addition to consumers and a variety of industrial users, no group benefits more from lower oil prices than the airline industry. About 20% of an airline’s costs are fuel related, which is down about 700 basis points from a year ago, but still material.
By Penn Mutual Asset Management | December 3, 2015
The trading volume of the most popular fixed income Exchange Traded Funds (ETFs) demonstrates a strong, increasing pattern. There are many traditional reasons for this increase in ETF popularity, but liquidity is emerging as one of the more important considerations contributing to this growth.
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Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
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High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
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