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 Jen Ripper | August 3, 2017
Summer conjures up warm memories of family vacations, lazy days, endless ice cream, amusement rides, walks on the beach, barbeques, and of course, occasional heat waves. Bananarama’s summertime hit “Cruel Summer,” which touches on oppressive heat, climbed the Billboard charts in 1984. Appropriately, the music video was shot during a heat wave.
For some investors, it may seem like a cruel summer with limited opportunities to generate alpha. It certainly feels like most major markets are heating up as risk premiums continue to grind tighter, leaving investors commiserating.
By James Faunce | July 27, 2017
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.
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.
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.
By Jen Ripper | June 8, 2017
In December 2016, the commercial mortgage-backed securities (CMBS) market officially adopted risk retention rules as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The rules were designed to promote an alignment of interests between sponsors and investors. Risk retention requires lenders originating loans to retain a 5% slice of each CMBS deal for five years, thereby forcing issuers to have ‘skin in the game.’
By James Faunce | April 6, 2017
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%.
By Scott Ellis | March 30, 2017
Corporations have a variety of different options when it comes to raising outside capital. In the most basic form, they can issue equity or debt. When corporations elect to raise debt, they can issue it on a secured or unsecured basis and with fixed or floating rates. It is up to the management teams to choose the best option for the company at that time and to preserve its options for the future.
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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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