US Credit Update – Improving Sentiment for Corporates

Highlights from U.S. credit markets:

  • High yield outperforms
  • Investment grade slowly catching up
  • Warm reception for new issuance
  • Demand for technology exposure
  • Pipelines underperforming

High yield outperforms

The rebound in risk markets last week boosted high yield bonds as well. The Bloomberg Barclays U.S. high yield total return index was the best performer at +30 bps. Utilities lagged among investment grade credits, falling 30 bps.

Investment grade slowly catching up

U.S. investment-grade credits continue to rebound as Treasury yields sustained the bullish breakout. The Bloomberg Barclays U.S. investment-grade index lagged initially as Treasuries found their footing in mid-February. We discussed the shift away from credit market exposure in recent credit updates. This may begin to reverse if Treasuries yields head convincingly lower.

Warm reception for new issuance

Our corporate desk noted that new issuance performed well after several weeks of very light primary market activity. This may be another sign of a shift in sentiment toward credit market exposure.

It was a rather active week in the credit markets. The indices were extremely volatile and cash spreads tightened 2 to 3bps. With the reversal of equities late in the week, spreads improved and street dealers were again better buyers. We saw selling of AAPL 2.5 2/9/25’s along with selling of BPLN 3.062 3/22’s. We did see some buying out the curve. We saw a buyer of ANTM 5.10 1/44’s. A rated paper trading ~4.65%.  New issue performance was impressive. The 6bln+ 8 part deal General Mills tightened roughly 7 to 14bps from its pricing. 

Demand for technology exposure

The technology sector has outperformed on a spread basis over the past month. Improving sentiment toward credit exposure has struck first among technology names. The chart below shows average 1-month changes in spread to benchmark Treasuries by sector for the Bloomberg Barclays industrial index. Technology spreads are only marginally wider on the month. Basic materials have underperformed as tariff and trade concerns mount.

Pipelines underperforming

We highlighted the stark contrast in political environments and operating conditions for pipeline operators in the U.S. and western Canada today in Newsclips. Political gridlock has brought pipeline projects to a screeching halt in Canada while the U.S. energy industry is pivoting toward Houston.

Spreads for pipeline issues have underperformed over the past month as markets digested changes to tax policies and growing political tensions. The chart below shows 1-month changes in spreads to benchmark Treasuries by duration. Pipeline issues (orange, right) have underperformed other industry groups in the energy sector of the Bloomberg Barclays industrial index. Some issues have seen spreads widen 30-40 bps since early March.

 

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