(New York)

Investors beware, the fundamentals of the junk bond market are looking terrible. The deterioration of the market has been happening for a long time, and thus it makes it easier not to realize it. The junk bond market is now about twice the size it was in 2007, and credit quality is lower. Protections for investors, in the form of covenants, are also much weaker as issuers were able to use the ultra-low rate market to their advantage. Now the big worry is that Libor is rising and many companies have floating rate debt that they cannot cover once it reaches certain levels.

FINSUM: According to the WSJ, the market should expect $500 bn of junk bond defaults over the next three years, and this figure could amplify considerably.

(Rome)

The big recovery after the huge losses in Italy might finally be underway. While downward pressure on Italian assets had subsided, there is now a big rally happening. The catalyst is that the country’s finance minster has just pledged that Italy will stay in the Euro, helping ease the market’s largest worry about the political crisis in Rome. The minister also pledged to avoid financial instability.

FINSUM: Italy’s two-year bond has already seen its yield fall 100 bp! That is quite a response. To be honest we doubt this pledge amounts to much, but it is good signaling for the market.

(Washington)

After 6 months of posturing, threats, and cancellations, it is all finally going to happen tomorrow. President Trump will meet North Korean leader Kim in Singapore. The South Koreans are referring to the meeting as the “summit of the century”, and everyone seems to hope it will be a success. It will be the first time two sitting leaders of the two nations have met. Trump is hoping clinch a deal for a denuclearization program in exchange for making North Korea more included in the economic system.

FINSUM: The US is cautioning that this will be the start of a long program rather than a big bang deal. That seems reasonable given the history here.

(Los Angeles)

One of the most disruptive technologies in industry might not seem that disruptive—batteries. Yet advances in batteries are about to reshape many areas, not least of which is the power grid. Home energy storage and car battery power are two of the biggest areas of disruption, and investors need to understand the dynamics in play. Better batteries mean less energy costs as power can be stored to smooth out demand-based pricing. It also makes electric vehicles legitimate, and possibly cheaper competitors to gas vehicles. Additionally, improved energy storage makes renewables profitable.

FINSUM: Batteries are going to change the economics of almost everything related to power. Make sure you understand some of the key battles because share prices are going to start reflecting the changes.

(New York)

While Treasury yields, especially at the short end of the curve, have improved a great deal recently. Many investors may still be interested in adding some stocks with good dividends to their portfolios. With that in mind, pharma may be a great place to look. The sector is having a tough time this year—down over 6% to-date—but that means dividend yields are looking strong. The sector is averaging 2.9%, but the best payers are near 4%, including some big names. For instance, AbbVie and Pfizer are both yielding 3.7% or over, and both seem to have rock solid outlooks where that dividend is not going to shrink.

FINSUM: These seem to be some great choices. The risk here does not appear to be in the fundamentals, but more related to interest rates.