(Bloomberg) — After rallying over the past three months, the mood in global credit markets is beginning to change.
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Despite the selloff over the past week, the Bloomberg index tracking investment-grade corporate debt is still up 10% from October market lows. And the premium on new bond offerings from the US to Europe has largely disappeared over the past few weeks. But now money managers and strategists are demanding a terror investigation.
“The low-hanging fruit has been picked,” Maria Staehli, a senior portfolio manager at Fish Asset Management in Zurich, told Bloomberg’s Tasos Vousos in an interview last week. “It has become clear over the past few weeks” that the opportunities, especially in new issues, are “getting very close to fair value.”
A recent concern is whether debt investors are paying too little attention to the risk that policy makers fail to control inflation and are forced to raise interest rates higher than expected.
Weird comments from Federal Reserve officials and a surprise jump in US used car prices fueled those concerns last week, leading to a 1.25% loss in Treasuries, the worst in three months. Adding to the warning signs, Treasury yield curves have further inverted, and Bloomberg Economics models are showing a high risk of a recession in the US. Yet the spread of corporate bonds over government debt increased by only two basis points.
Barclays strategists led by Brad Rogoff wrote in a note on Friday, “While it is difficult to identify a specific catalyst that will cause materials to widen in the near term, we think the risk-reward for credit is right after the recent rally.” It’s gone bad.”
Strategists at JPMorgan Chase & Co in London earlier warned that strong gains in Europe’s credit markets could eventually trigger a move by central bankers to reign in liquidity.
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“After four months of tight spread calls, we’re starting to feel a little nervous,” wrote strategists led by Matthew Bailey.
Amid that stress, companies are rushing to borrow whenever they can.
Ten companies sold $8.5 billion in new debt in the US high-yield bond market this past week, mostly to refinance debt, from American Airlines to Royal Caribbean Cruises. Even in the leveraged loan market, which was largely closed until recent weeks, there were about $5.9 billion worth of deals.
Libor’s death stopped
This is supposed to be the year when trillions of dollars in assets, from mortgages to corporate loans, finally shed the scandal-plagued benchmark known as the London Interbank Offered Rate (LIBOR). But as Bloomberg’s Paula Seligson reported last week, this routine is proving to be anything but.
Roughly three-quarters of the $1.4 trillion US leveraged loan market still needs to flip to the SOFR, or Secured Overnight Financing Rate, to meet the end-June deadline for the transition from LIBOR.
But lenders have rejected a string of revisions that would flip the benchmark on some existing loans because of what they call a “credit spread adjustment,” which means an extra handful of basis points above how LIBOR usually prints the SOFR. does. In recent weeks, lenders have successfully blocked proposed adjustments they saw as little from sports and news broadcaster Sinclair Broadcast Group, pet food firm Wellness Pet Co., ticket resale company Viagogo Entertainment Inc. and communications equipment business Comscope Inc.
Korea’s resurgent credit market saw the largest won-denominated corporate bond offering in at least a decade, as SK Hynix sold 1.39 trillion won ($1.1 billion) in notes. A company filing showed the memory chipmaker received more than $2.5 trillion in orders for loans.
Investment banks including JPMorgan Chase & Co are reaching out to investors to gauge their interest in bond sales by Chinese developers after a year of drought. Banks have been encouraged by the property arm of Dalian Wanda Group after completing its second sale last month, a sign that investors are more willing to lend to high-quality firms in the sector.
After more than a year of underweighting Chinese developer bonds, BEA Union Investment Management Ltd is buying debt again, saying it still offers “the most attractive buying opportunities” in China’s credit market. This is even though there has been a huge increase in debt in recent months.
Texas’ war against ESG-friendly banks has cost Citigroup a share of the state’s largest municipal bond deal ever. The New York-based bank, which the Texas state attorney general called “discrimination” against the firearms industry, was pulled from a $3.4 billion offer to bail out natural gas utilities hit by financial losses from a deadly 2021 winter storm. Will raise money for ,
– Jill R. With assistance from Shah, Wei Zhou, Tasos Vassos, Caleb Matua, Paula Seligson, and Dana L. Baltaji.
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