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Brace For Buyback Tsunami Following Record Flood Of Corporate Bond Issuance

Brace For Buyback Tsunami Following Record Flood Of Corporate Bond Issuance

While traders were focused on today’s ECB meeting and the (spectacular)…

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This article was originally published by Zero Hedge
Brace For Buyback Tsunami Following Record Flood Of Corporate Bond Issuance

While traders were focused on today's ECB meeting and the (spectacular) 30Y auction which initially pushed yields higher on supply concerns only to see them slide right back down after the huge buyside demand for ultra-long dated paper, the real action was in corporate bond land where the last few days have seen an unprecedented borrowing binge.

As Charlie McElligott wrote in his daily note, "after nearly $40B of deals Tuesday, there was another $28.2B across 19 issuers and 34 tranches yesterday, with the early look showing 14 deals in today’s pipeline already—just INCREDIBLE demand for Paper AND Duration."

This "supply firehose" also caught the attention of BofA credit strategist Hans Mikkelsen, who in a note titled aptly enough...

... wrote that US investment grade issuance for the first two days of this week stands at $60.6bn across a record (for any two-day period) 39 deals; this compares to the previous two-day record was 36 deals immediately after Labor Day in 2019.

Indeed, while the post-Labor Day week is normally one of the busiest of the year in debt capital markets, the past three sessions have been among the most active ever.

While heavy supply over short periods can tend to weigh on credit spreads if investors start getting pickier, that has certainly not been the case this week, with Wednesday’s slate of sales seeing order books three times covered on average.

Some details on the supply deluge: the average new issue concession and break performance were in line with yesterday at an impressive +5bps and -2.9bps, respectively, meaning that bonds were promptly bid up upon breaking for trade as yield starved accounts simply could not get enough. The spread on the Bloomberg U.S. Corporate Investment-Grade Bond Index hasn’t budged this week, sitting at just 88 basis points.

And while BofA expected the unprecedented issuance spree to fade on Thursday, Bloomberg notes that the "firehose" of supply showed no signs of slowing Thursday amid what bankers and borrowers say are ideal conditions for high-grade companies to tap the bond market for financing.

After a relatively slow August even by Wall Street standards, issuers are back in force. They’re taking advantage of pent-up investor demand for high-quality credits, and looking to lock in their funding needs for the year amid concern that the Federal Reserve will soon begin to pull back stimulus that’s helped push interest rates to near-record lows.

According to Bloomberg calculations, another 14 blue chip companies were looking to sell bonds Thursday, after the abovementioned 39 firms priced more than $60 billion of debt over the previous two sessions.

“Companies want to issue and lock in this low financing now, and not take any chances on the Fed,” said Matt Brill, head of U.S. investment-grade credit at Invesco Ltd. “And buyers have not been scared at all. We have not seen spreads back up or any deals struggle to get done.”

One reason for the debt issuance scramble is that companies are concerned conditions could worsen should Fed officials begin to tighten monetary policy in the coming months, and are taking advantage of one of the most attractive funding environments on record with financial conditions the easiest they have ever been, according to Goldman.

Many are looking to lock in cheap funding costs and improve their balance sheets via refinancings while they still can, yet others are just hoping to load up on cash which they can then use to repurchase stock.

“Us investors are saying ‘Hey, keeping bringing more. We’re not getting enough bonds,’” Brill added, noting that the lack of supply over the last half of August meant a lot of dry powder was ready to pounce on new issues.

Much of the new supply this week has been focused on balance sheet management and lowering cost of debt, with relatively few M&A-focused transactions. As Bloomberg notes, several deals - including Walmart’s massive $7 billion sale Wednesday - are earmarked to fund tender offers, a sign that low rates are one of the main motivators.

A quick look at the issuers who have just sold bonds shows a "who is who" of some of the world's most highly rated credits including Nestle, Walmart, Toyota, PECO Energy and many more. The table below is courtesy of BofA:

The deluge continues today with at least 14 lender meetings are deck in the leveraged loan market. Some more observations into today's borrowing frenzy from Bloomberg:

  • An “abnormally low” spot spread differential between Libor and SOFR may be obstructing the adoption of replacement rates in the loan market, according to the Loan Syndications and Trading Association
  • Walmart’s new investment-grade bonds rallied in secondary markets Thursday, a day after the debt offering received as much as $25 billion in demand
  • Janus Henderson is launching two actively managed fixed-income ETFs that integrate sustainable investing criteria
  • ABC Carpet & Home, the more than a century-old New York luxury home goods retailer, filed for bankruptcy late Wednesday after the pandemic and a delayed renovation upended its business.

The calendar is just as busy in Europe, where there are seven issuers selling at least 3.27 billion euros-equivalent of bonds on Thursday.

  • U.K. specialist insurer Just Group Plc is on track to cut its interest costs by replacing a bond issued in only 2019, extending a run of similar transactions as companies take advantage of the collapse in yields
  • Nearly 80% of European credit investors would be willing to pay a premium for a sustainability-linked bond where the key performance indicators used are “material” to the issuer
  • Risk premiums and yields near record lows have pushed money managers with a mandate to buy European high-grade debt into buying lower-rated bonds.

One final note: while much of tens of billions in proceeds will be used to refi existing debt, we expect a good portion to stay as "general corporate purposes", i.e., used as dry powder to repurchase stocks. Which means brace for a tidal wave of buybacks in the coming days.

Tyler Durden Thu, 09/09/2021 - 13:52


The Stock Market Plunge Is Wall Street Sending a Message to the Fed

The September slump on Wall Street took a turn for the worse yesterday, as stocks plunged on Monday in their worst sell-off since July. Even with a huge…

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The September slump on Wall Street took a turn for the worse yesterday, as stocks plunged on Monday in their worst sell-off since July. Even with a huge end-of-day bounce, the Dow Jones still closed down 1.7%, while the S&P 500 shed 1.6% and the Nasdaq tumbled 2.2%.

Source: Shutterstock

The catalyst?

It wasn’t obvious. But most folks pointed to the Evergrande crisis over in China. Long story short, one of China’s largest property developers is at serious risk of defaulting on its $300 billion debt mountain, and investors are concerned that a default of such size would have collateral effects across the global economy.

But that’s not really what’s going on here…

Evergrande is big in China, and it collapsing would have a negative impact on the Chinese economy, but the impact of a default on the rest of the global economy (especially in the United States) would be minimal.

So… why did stocks plunge yesterday?

The Fed.

The Fed is slated to meet today and tomorrow to discuss monetary policy. Many Fed members have voiced a hawkish tone ahead of that meeting, advocating for some tightening via a tapering of asset purchases.

Wall Street is braced for this – investors are largely “OK” with a gradual and smooth taper.

But Wall Street doesn’t want anything more, and they’re letting the Fed know by selling stocks ahead of the meeting, basically saying: “Hey, Fed, if you tighten more aggressively than you’ve signaled, the stock market’s going to collapse, and the whole world is going to blame you.”

It’s a warning shot.

And it’ll work.

For all the talk the Fed gives us that it doesn’t follow the market, it absolutely does – this Fed, in particular, has a history of responding to the financial markets. Heck, it even owns stocks!

The smart money on Wall Street knows Fed Board Chair Jerome Powell and company are watching the markets, and they’re know that if Fed members see the market bleeding on Monday, Tuesday, and Wednesday, they’ll be less inclined to tighten any more aggressively than absolutely need be…

So, here’s how my team and I think the next few days will play out.

Monday was bloody. Tuesday and Wednesday will be choppy. Then, Powell will take the stage around 2 p.m. ET on Wednesday to discuss the Fed’s meetings. We expect him to announce a taper at that conference, but nothing more, and to ultimately sound an ultra-dovish tone (which the markets want to hear).

Stocks will reverse course and rebound from this sharp sell-off in the back half of the week.

That’s our base case outlook for the next week. But, please remember, this is a volatile market and anything could happen. Stocks could bounce back today. They could slump into the end of the week.

And that gets to our bigger point here: If you want be a successful investor, you have to develop an immunity to these short-term market gyrations.

What matters more than how stocks fare over this week, is how they fare over the next 12 months. And what matters more than how stocks far over the next 12 months, is how they far over the next three years… the next five years… the next ten years.

When the stock market drops, you have to zoom out and look at the big picture. Ask yourself: Is today’s drop because of something fundamentally wrong with my stocks and/or the global economy, to a point where my stocks will be adversely affected over the next 12 months? Or three years? If no, move on – if yes, then reassess.

It’s that simple.

And, as we ask ourselves that very question right now, the answer is unequivocally no, so we move on.

We ignore the noise. We gradually roll into the dips as they come. We cost-average into our favorite positions. And we put ourselves in a spot to see big gains in the market over the next 12 months… three years… five years… so on and so forth.

Easy to say. Harder to do.

Which is why we’re here.

We run an exclusive investment advisory called Innovation Investor that focuses entirely on investing in the world’s most innovative technologies and world-changing trends. We don’t care about the Fed. Or interest rates. Or inflation. Or even pandemics.

We care about innovation, because humankind has multi-millennia track record of relying on innovation to always – always – beat a crisis. Doesn’t matter if we’re in a world war, a global pandemic, or if Wall Street is just worried about a Fed meeting. Innovation, which powers the world forward, always wins at the end of the day.

That’s why we invest in innovation. It’s the one thing you can always count on to generate huge returns for you in the stock market.

So, don’t stress this market sell-off. Instead, sit back, relax, and join us in investing in innovation.

Click here to find out more.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

The post The Stock Market Plunge Is Wall Street Sending a Message to the Fed appeared first on InvestorPlace.

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Precious Metals

Peter Schiff: Buy Less; Pay More

Peter Schiff: Buy Less; Pay More


We got a much better than expected retail sales report for August. That sparked a selloff…

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Peter Schiff: Buy Less; Pay More


We got a much better than expected retail sales report for August. That sparked a selloff in gold and silver as the markets continue to anticipate Fed monetary tightening. But was this report really fantastic news? Peter Schiff breaks down the report and says it’s actually just telling us consumers are paying more to buy less.

Retail sales were up a healthy 0.7% last month. The expectation was for a 0.8% decrease. Taking out autos, retail sales rose 1.8%, and x-autos and gas, retail sales were up 2%.

The moment this report came out, gold and silver got hammered, and the dollar caught a bid.

People are excited because they think aha! the consumer is strong and therefore the Fed is going to tighten policy, which of course is complete nonsense. Because even if the Fed were to tighten policy, what they are going to do hardly constitutes ‘tighten’ in the traditional sense of the word.”

The Fed is only talking about tapering its quantitative easing program. Instead of buying $12o billion in Treasuries and mortgage-backed securities, the central bank will buy less than that number. How much less, we don’t even know.

All they’re going to do is be a little less easy than they are right now. But under no definition of monetary policy is less easy when you’re already super easy, and now you’re slightly less super easy — that’s not tight. That type of ‘tightening’ is not positive for the dollar. It is not negative for gold. But again, that is the way markets are reacting to it because they’re simply looking back at time, and they know, that oh, when the Fed is tightening you don’t want to fight the Fed. When the Fed is raising rates and fighting inflation you want to own the dollar. You don’t want to be in gold. Except the Fed is not going to do that in the traditional sense because it can’t because it’s inflated too big a bubble to actually do that.”

Peter said the Fed may not even be able to taper. The extent of the tightening may just be talking about tapering.

But even if they taper, the balance sheet continues to grow.”

Tapering doesn’t stop quantitative easing. Peter said by the time the Fed finally tapers to zero, the balance sheet will likely be at $10 trillion, if not higher.

Now what are they going to do? Are they going to try to shrink their balance sheet again? Are they going to do another quantitative tightening? How far are they going to get? Will they be able to go down to $9 trillion or $8 trillion before the wheels come off the bus again and they’re back to an even bigger QE program than they had before and then the balance sheet doubles to $20 trillion? …

The point is the balance sheet is growing in perpetuity. It’s impossible to shrink it. Even if you temporarily manage to shrink it, all you’re simply doing is setting the stage for the next QE program that’s going to blow it up to new highs. Because the minute you try to take away the drugs, the economy goes into convulsions.”

So, there’s no sense in getting all excited about some economic data that may signal Fed tightening when it will quickly be reversed with a return to another round of easy money policy.

Peter made another important point regarding retail sales. Just because the number is higher doesn’t mean consumers are buying more stuff. Retail sales numbers are not adjusted for price.

There are two ways retail sales can go up.

  1. Consumers buy a larger quantity of stuff.

  2. The price of the stuff they’re buying goes up.

The question is: are retail sales up because consumers are buying more, or is it simply another sign of rising prices?

You can’t tell from the data. But obviously, if you’re living in the real world, it’s obvious what’s going on. I think the bigger component of the increase in retail sales is the price of the stuff people are buying. So, it is the fact that they’re paying more that is driving these numbers up. Not that they’re buying more.”

The huge, unexpected plunge in consumer sentiment in August backs Peter up. The culprit was inflation. Americans are putting off plans to buy big-ticket items such as cars and other durable goods.

If consumers aren’t buying household durables; if they’re not buying cars; why are retail sales so strong? Well, probably because the stuff they are buying is so much more expensive now than it used to be that retail sales are up because prices are up. But that is nothing to celebrate. That is not a sign of economic strength.”

And that raises a question: how much longer can over-indebted consumers keep paying these upward-spiraling prices?

They can’t. They’re going to have to start cutting back on a lot of what they buy because the stuff they do buy is going to be so much more expensive.”

In this podcast, Peter also talks about Sweden’s successful COVID policy and the cost of the Iraq war.

Tyler Durden Tue, 09/21/2021 - 06:30
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Oil and Gold rally, Bitcoin sinks, in Asia

Oil rallies in Asia after overnight sell-off.   Oil, along with commodities in general, was crushed in the overnight session as China-driven risk aversion…

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Oil rallies in Asia after overnight sell-off.


Oil, along with commodities in general, was crushed in the overnight session as China-driven risk aversion fears swept markets. Brent crude fell by 1.45% to $74.20, and WTI fell by 2.05% to $70.40 a barrel. Sentiment has improved in Asia today though, with the commodity space rallying generally, as dip-buyers appear after yesterday’s sell-off. Brent crude and WTI have added 0.50% to $74.55 and $70.80 a barrel respectively.


Although prices have recovered in Asia, I suspect that short-term sentiment remains fragile as it is elsewhere and is vulnerable to headline driven moves. A series of lower daily highs on both contracts suggests that we could still see more downside pressure ahead of China returning tomorrow, and with it, hopefully more clarity surrounding its intentions for Evergrande.


Brent crude has resistance between $75.50 and $76.00 a barrel with support at $73.50 a barrel. With sentiment fragile generally, a deeper correction to $72.00 a barrel, home to its 50 and 100-day moving averages (DMAs), cannot be ruled out. WTI has resistance between $72.00 and $73.00 a barrel, a congestion zone of daily highs. It has support initially at its overnight low at $69.90 a barrel. Like Brent crude, losses could extend to its 50 and 100-DMAs at $69.45 a barrel.


Gold loves a crisis.


Gold stabilised overnight as the risk aversion wave sweeping financial markets, finally gaining some haven tailwinds which lifted it to a positive close in New York. Gold finishing the session 0.55% higher at $1764.00 an ounce. In Asia, the tentative rally in commodities and equities has seen gold fade slightly to $1762.00 an ounce.


Depending on how the Evergrande situation plays out with markets, gold could continue finding safe-haven buyers, or buying interest could evaporate once again as quickly as it appeared, particularly if the China government soothes nerves when China returns to work tomorrow. Either way, if the FOMC gives concrete guidance on a tapering timeline at Wednesday’s meeting, gold will resume its downward direction, as the former would inevitably lead to a stronger US Dollar.


Gold continues to have resistance just above at $1770.00, followed by the far more formidable $1780.00 an ounce region. Even if risk sentiment remains negative, it is hard to see gold recapturing the latter. Gold has support at $1742.00, followed by $1720.00 an ounce, followed by longer-term support in the $1675.00 region. Given gold’s recent price action, its path of least resistance remains lower despite the temporary respite.


Bitcoin isn’t happy.


Bitcoin has fallen nearly 11.0% over the past 24 hours, as risk aversion elsewhere saw the blockchain herd stampede towards a very small exit door. This kind of behaviour is typical in the crypto space where liquidity evaporates causing strong directional moves, up or down before the haters start.


Crypto’s has a few headwinds to contend with overnight. President Erdogan of Turkey said he was at war with them. Meanwhile, Coinbase acceded to SEC pressure and pulled its allegedly US Dollar backed un-stable coin lending offering.


Bitcoin has seen off a bearish pennant formation last week and looked ready to resume its rally through $50,000. However, yesterdays massive tumble saw it plummet through two-month support at $44,450.00, crashing as low as $40,200.00 before recovering to $42.400.00 in Asia.


Like gold, Bitcoin’s rally looks like a dead cat bounce, and it remains vulnerable to more disorderly sell-offs in the current environment. The breakout point at $44,450.00 is initial resistance and it needs to recapture this quickly to restore confidence. The 100-DMA at $40,800.00 held on a daily basis overnight and forms a zone of support with $40.000,00. A failure of $40,000.00 on a closing basis signals a potential capitulation to $30,000.00.

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