I will then talk more specifically about some of the data the Reserve Bank has been collecting
on the corporate bond market.
Pressure
on the corporate bond market from CDS - related selling did not abate until mid-November of 2002.
The drag
on the corporate bond market is coming from the largest sector in the S&P 500 Bond Index, the Financials sector.
Not exact matches
But there's more going
on here than poor planning and backroom arguments — something that is making even wary investors outside the
corporate bond market sit up and take notice.
Based
on where
bonds are trading today, the
market is saying about 5 % of those
corporate loans will go bust, or roughly $ 35 billion worth at the six biggest banks.
Although it is fair to say that the recent uptick in volatility has in part reduced earlier concerns about prolonged low volatility and associated reach - for - yield behavior, it has placed added focus
on the resilience of liquidity, particularly in
markets, such as the
market for
corporate bonds, that may be prone to gapping between liquidity demand and supply in stressed conditions.
Earlier this week, the Wall Street Journal, published a fascinating story
on the
market for
corporate bonds that comply with the standards of Islamic law.
Here are some examples: You can own a mid-size company index; a small company index; an international index; an emerging
market index (think Third World countries); a government
bond index; a
corporate bond index; a real estate index fund and
on and
on.
All
markets will continue to focus
on the volatility in the equity and
bond markets, geopolitical events, developments with the Trump Administration,
corporate earnings, oil prices, and will turn to this afternoon's FOMC Meeting Statement followed by reports tomorrow
on UK PMI, Eurozone PPI, CPI, US Challenger Job Cuts, Productivity, Unit Labor Costs, Jobless Claims, Trade Balance, Markit Services PMI, ISM Services, Durable Goods and Factory Orders for near term direction.
This leaves us roughly in the same position that we started the year, slightly overweight to spread product, i.e., investment - grade and high - yield
corporate bonds and emerging
markets (more recently, we also went back to a slight overweight
on commercial mortgage - backed securities).
These steps include: efforts to simplify prospectus requirements for retail vanilla
bonds and ease the personal liability of company directors; improving
market transparency through the RBA's publication of new measures of
corporate bond yields; the lengthening of the government
bond curve; and the listing of certain fixed - income securities
on the Australian Securities Exchange.
All
markets will continue to focus
on the volatility in the equity and
bond markets, geopolitical events, developments with the Trump Administration,
corporate earnings, oil prices, and will turn to reports tomorrow
on Japanese PMI, UK PMI, US Vehicle Sales, Markit Manufacturing PMI, Construction Spending and ISM Manufacturing for near term guidance.
All
markets will continue to focus
on the volatility in the equity and
bond markets, geopolitical events, developments with the Trump Administration,
corporate earnings, oil prices, and will turn to reports tomorrow
on Japan's Leading Index and Machine Tool Orders, German IFO, US Case - Shiller Home Price Index, New Home Sales, Richmond Fed and Consumer Confidence for near term guidance.
Other
bond funds focus
on a narrower slice of the
bond market, such as a short - term Treasury fund or a
corporate high - yield fund.
The fund focuses
on US
corporate bonds, convertible securities, foreign debt instruments (including those in emerging
markets) and US government securities
Some 5.7 % of
corporate junk
bonds from emerging
markets are trading at prices below 70 cents
on the dollar, more than double the rate for higher - risk U.S.
bonds, according to JPMorgan.
According to preliminary statistics, the aggregate financing to the real economy (AFRE)... was RMB 19.44 trillion in 2017... Specifically, RMB loans to real economy registered an increase of RMB 13.84 trillion... foreign currency - denominated loans (RMB equivalent)... recorded an increase of RMB 1.8 billion... entrusted loans registered an increase of RMB 777 billion... trust loans registered an increase of RMB 2.26 trillion... undiscounted bankers» acceptances recorded an increase of RMB 536.4 billion... net financing of
corporate bonds stood at RMB 449.5 billion... equity financing
on the domestic stock
market by non-financial enterprises registered RMB 873.4 billion...
The average investment - grade (high - yield)
bond trades
on less than 32 % (36 %) of days over the prior six months — liquidity in
corporate bonds was considerably lower than in traditional listed equity
markets.
The major
bond market segment that most investors concentrate
on is the high - quality sector: U.S. government
bonds, high - grade
corporate bonds and high - grade municipals.
In sovereign debt and, to an even greater degree,
corporate bond markets, liquidity hinges in large part
on whether specialised dealers («
market - makers») respond to temporary imbalances in supply and demand by stepping in as buyers (or sellers) against trades sought by other
market participants.
For that reason,
bond markets, particularly those for
corporate issues, tend to rely
on market - makers, typically banks or securities firms.
This feature article draws
on recent work by the Committee
on the Global Financial System (CGFS) to investigate trends in
market - making and what they mean for the financial system (CGFS (2014)-RRB-.2 We use a simple conceptual framework to assess how supply and demand for liquidity have changed in fixed income
markets, particularly in
markets for sovereign and
corporate bonds.
The euro may be languishing now, but it could well rebound substantially over the course of a typical five - or seven - year
corporate bond term, especially against emerging
markets currencies that are
on slippery footing themselves.
The yield
on the 10 - year Treasury
bond climbed above 3 % for the first time since 2014, but of greater concern to many
market participants were remarks in major
corporate earnings reports suggesting that business conditions had likely hit their peak and were poised to deteriorate going forward.
And
on the list of possible investments are also high yield
corporate bonds and, perhaps, some emerging
market sovereign
bonds.
Van Eck adds another yield - generating ETF, this one focused
on emerging
market corporate junk
bonds.
A deepening and widening of the nascent
corporate bond market in India is
on track, following reforms by the Reserve Bank of India aimed to draw in foreign and small investors.
Any significant rise in
corporate bond yields would throw cold water
on a key artificial impetus in the stock
market — corporations borrowing heavily to buy back their own stock.
Bank crisis, poor response to the crisis, misuse of leverage, bear
market, this time is different, the
bond market not functioning properly, enormous
corporate failures and so
on.
The continuing low level of government
bond yields has supported the search for yield that has been evident over the past couple of years, with the spread between yields
on US government debt and yields
on both
corporate and emerging
market debt remaining around historical lows over the past three months (Box B).
Its $ 46 billion
corporate bond issue in January 2016 was hailed as the largest
on record; large
bond issues were easier to trade than small ones as banks shied from debt capital
market in response to capital requirements.
We all know that the massive reduction in dealer inventories and the cost of capital has had a huge negative impact
on liquidity in the
corporate bond market.
Keeping the
bond markets open is absolutely vital at a time when
corporate profitability is
on the ropes.
The BAA spread refers to the yield
on corporate bonds above the rate
on comparable maturity Treasury debt, and is a
market - based estimate of the amount of fear in the
bond market.
All
markets will continue to focus
on the volatility in the equity and
bond markets, geopolitical events, developments with the Trump Administration,
corporate earnings, oil prices, and will turn to tomorrow's much awaited US Payroll Report for near term direction..
All
markets will continue to focus
on the volatility in the equity and
bond markets, geopolitical events, developments with the Trump Administration,
corporate earnings, oil prices, and will turn to this afternoon's Commitment of Traders Report, followed by reports Monday
on Chinese PMI, German CPI and Retail Sales, US Personal Income, Personal Spending, PCE, Chicago PMI, Pending Home Sales, and the Dallas Fed's Manufacturing Index for near term direction.
Rather, the increase in spreads appears to reflect both tightness in the Commonwealth Government
bond market (where supply remains limited and demand by foreign investors appears to have increased) and upward pressure
on swap rates (one benchmark against which
corporate bonds are priced) as companies have sought to lock in fixed - rate borrowings due to expected increases in interest rates.
All
markets will continue to focus
on the volatility in the equity and
bond markets, geopolitical events, developments with the Trump Administration,
corporate earnings, oil prices, and will turn to earnings from Apple after the bell today, and reports tomorrow
on Japanese PMI, Chinese Caixin PMI, Eurozone GDP, PMI, Unemployment, US MBA Mortgage Applications, ADP Employment Change, Oil Inventories, and the FOMC Meeting Statement for near term direction.
Major equity
markets have risen further, and appetite for risk has increased, with spreads
on corporate and emerging
market bonds falling to levels not seen for several years.
To better understand green
bond performance and valuations in the secondary
market, Morgan Stanley analyzed 121 self - labeled U.S. and European
bonds, focusing
on corporate, and government or government - related benchmark - size securities (at least $ 500 million).
Using monthly levels of Moody's yield
on seasoned Aaa
corporate bonds and the Dow Jones Industrial Average (DJIA) during October 1928 through February 2018 (about 90 years) and monthly levels of the 10 - year government
bond interest rate and the stock
market from Robert Shiller during January 1871 through February 2018 (about 148 years), we find that: Keep Reading
Central banking policy has had an extraordinary impact
on the US
corporate bond market.
Issuance of investment - grade
corporate bonds picked up in early March in a receptive
market, as investors sought higher yields than were available
on safe - haven Treasury
bonds.
The Deutsche X-trackers Emerging
Markets Bond Interest Rate Hedged ETF (EMIH), the Deutsche X-trackers Investment Grade
Bond Interest Rate Hedged ETF (IGIH) and the Deutsche X-trackers High Yield
Corporate Bond - Interest Rate Hedged ETF (HYIH) will begin trading
on the Bats exchange
on June 9.
Today three Deutsche Bank ETFs — the Deutsche X-trackers Emerging
Markets Bond Interest Rate Hedged ETF (EMIH), the Deutsche X-trackers Investment Grade
Bond Interest Rate Hedged ETF (IGIH) and the Deutsche X-trackers High Yield
Corporate Bond - Interest Rate Hedged ETF (HYIH)-- delisted from the NYSE Arca exchange and listed
on Bats» BZX Exchange.
The collaboration with Algomi will give the custody bank's clients the ability to make select
corporate bond holdings information available anonymously
on the Algomi Honeycomb network of
market participants.
I'm guessing it's easier to find buyers for a
corporate bond on the secondary
market, so I could probably get a better price.
We continue to keep a close eye
on the evolution of the
corporate bond markets in China; the more transparency and steps towards global standards may help open the
market up to a broader global
market.
Unlike Treasuries and investment grade
corporates, the high yield
market as measured by the S&P U.S. Issued High Yield
Corporate Bond Index touch a low point for yield earlier in the month at a 5.87 %
on October 6th.
The talk regarding an illiquid public
corporate bond market goes
on, and if you've read me over the past year
on this topic, you know that I don't think it is a serious issue.