Bonds: IG
JPMorgan Chase & Co. is the latest financial firm to sell debt in the U.S. Bond Market, joining the likes of Goldman Sachs, Bank of America and Citigroup Inc.. JPMorgan is selling over $3 billion in bonds with a yield of .97 percentage points over the U.S. Treasuries and 11 year maturity. The flood in financial bonds is a result of the strong earnings posted by the financial industry in the last quarter. Goldman leads the pack with over $9 Billion in new debt issuance. However, some say JPMorgan is the most susceptible to issuance pressure from regulators with debt issuance driving leverage.
FINSUM: Don’t let balance sheet risk get anyone worried, because post 2008 leverage ratios are closely monitored and almost ensure fiscal support pending financial risk.
(New York)
The bond market seems to have lost all touch with reality. Yields are extremely low, and given the more relaxed inflation reading this month, seem likely to stay pinned. Now consider this: European corporate debt real yields just turned negative. Yes, you are paying for the privilege of holding corporate debt. The ICE BofA index of European high-yield bonds is now at 2.34%, well below inflation.
FINSUM: Is there were ever a sign of a peak, this is it. Bond yields have nowhere to go but up, as there is no defensible logic that they could sustainably move lower. Unfortunately, it seems as though bonds and equity could move hand in hand, as the catalyst for big losses would be the Fed, which would trigger both asset classes.
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(New York)
Morningstar has added a lot of coverage to their model portfolio universe this year. Earlier in 2021 they expanded their coverage of ratings to 1500 model portfolios, an increase of 50%. Of all those funds reported on, only two of them took home their coveted gold rating: the Vanguard CORE series and the BlackRock Target Allocation ETF. Vanguard was noted as having highly diversified index funds and rarely making portfolio changes. Other funds that got acclaim, such as their silver rating, include American Funds Growth & Income and the American Funds Tax Aware Growth & Income series.
FINSUM: The world of model portfolios has grown nearly as dizzying as that of ETFs so these Morningstar guides are a big help.
(New York)
The bond market has had a good year. For the last several months, yields have been falling and corporate bonds have seen big gains this year thanks to better earnings and ratings upgrades. Munis have been a big success too. But one area has been even hotter: ESG bonds, which have will see over $1 tn of issuance this year. To put that in perspective, it would be more than double what was issued in 2020. JP Morgan explained the big surge in ESG best, with their head of ESG debt capital markets saying “What began with ‘why should I issue?’ is now ‘why aren’t you? … your absence in the market says something now”.
FINSUM: ESG is fully mainstream now and seems to be gathering more and more assets/issuance. What will this do to issuance in clear non-ESG sectors?
(New York)
You may not be paying much attention to it, but the last month has been very good for investment grade bonds. The reason why is that ratings agencies are in the midst of a massive wave of upgrades to companies that got downgraded at the start of COVID. This has sent demand for debt soaring as companies re-enter the investment grade market. For example, just in the week ending July 16th alone, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) pulled in $1.1bn in inflows. According to a credit strategist at Citi, “It’s like something that I have not seen in my time [in the industry] … After the financial crisis we didn’t get major companies moving back to investment grade so quickly”.
FINSUM: This is the early innings of yet another corporate bond bull run. Only credit specialists have mostly paid attention to this point, but investment grade bonds seem a good choice given the credit rating tailwind.