/ 6 Oct 2020
Recent trends behind key IG drivers are quite supportive. With the start of the last quarter of 2020 it is worth looking at some key drivers, or so called ‘technicals’, for IG given our overweight views on the asset class. First, expected IG bond issuance is likely to slow dramatically in the remainder of the year as companies see less incentive to hold large amounts of precautionary cash to face an uncertain COVID outlook. This year broke IG bond issuance records with a Sep’20 YTD worth US$1.74 trillion (the March-May 2020 period saw an monthly average issuance that was over double normal levels), easily breaching the full 2017 US$1.51 trillion existing record. Amid abundant issuance, IG companies raised cash balances and reduced refinancing needs substantially.
/ 28 Sep 2020
Moving to Neutral US Equities. We have moved our weighting in US Equities from Underweight to Neutral as US Equity markets have corrected ~10% from their recent highs. The correction was driven primarily by the technology sector as valuations got extended, and the sector rallied up and down due to option related activity from retail and institutional investors. Economically sensitive sectors have held in better during the sell-off as trends in transportation, auto, housing, and industrial sectors have continued to improve.
/ 14 Sep 2020
Looking for Dividends? Dividend investing historically has been a popular style, and in a low-interest-rate environment, it could provide income that might not be available in other markets. During the pandemic, a total of 41 companies in the S&P 500 eliminated/suspended their entire dividend while 21 companies reduced them. Most of the companies were in the travel, hospitality, and retail sectors, which were hit the hardest from the pandemic (Disney was the largest company to eliminate its dividend).
/ 8 Sep 2020
‘CCC’ Rated Bonds Signal Rising Pressure for US HY Default Rate. Two good indicators to potentially track the general direction of the US HY default cycle are the default rate in the ‘CCC’ rated segment and the overall US HY distress ratio, or simply put, the percentage of bonds trading above 1,000 bps. These two indicators tend to be more sensitive to credit stress that the overall US HY default rate, generally identifying changing trends slightly earlier.