May 2017 was a sufficiently stunning month in the credit markets.
And it deserves an update on the litany of data the I laid out in my last update (April Credit Markets Recap).
For comparison, I highlighted some key credit markets performance indicators for the month of April and then shared the May data in the same format.
May also marked new all-time highs in the S&P 500 Index (INDEXSP:.INX) and other key equity market indices. The bull marches on…
Here is how credit performed during the month of April:
- New corporate bond issuance: April $122.4B; Year-to-date $687B
- Investment-grade credit spreads: down 1bp, from 111bps to 110bps;
- High-yield credit spreads: down 13bps, from 384bps to 371 bps;
- Investment grade credit default swap index: down 2.4bps from 66.3bps to 63.9bps
- High yield credit default swap index: down 10bps from 337bps to 327bps
- My index of credit default swaps on debt of large US financials institutions: down 27bps, from 387bps to 360bps;
- My index of credit default swaps on that of major US insurance companies: down 15bps, from 304bps to 289bps;
- Credit default swaps on subordinated debt of EU financial institutions: down 28 bps, from 195bps to 168bps; and the last but not least
- My index of credit default swaps on China sensitive financial institutions: down 74bps, from 796bps to 722bps. (Second to tightest level in the last five years)”
Here is how credit performed during the month of May:
- New corporate bond issuance: May $211.2B; Year-to-date $898B
- Investment-grade credit spreads: down 3bp, from 110bps to 107bps;
- High-yield credit spreads: down 7bps, from 371bps to 364bps;
- Investment grade credit default swap index: down 2bps from 63.9bps to 62bps
- High yield credit default swap index: unchanged
- My index of credit default swaps on debt of large US financials institutions: down 38bps, from 360bps to 322bps;
- My index of credit default swaps on that of major US insurance companies: down 39bps, from 289bps to 251bps;
- Credit default swaps on subordinated debt of EU financial institutions: down 11bps, from 168bps to 157bps; and the last but not least
- My index of credit default swaps on China sensitive financial institutions: unchaged.
If you want to pay attention to just two of these data points, simply consider this: May 2017 was the 3rd highest monthly supply of corporate bonds since January of 2013 and resulted in overall spreads going down. I’m not sure there is anything else to say.
If you do not think this activity impacts stocks (if not immediately, within a few months), May saw new buyback announcements of $79 billion and more than $50 billion of announced cash M&A transactions.
Lastly, pensions and endowments – the primary sources of all the money going into credit – made new cash commitments (on an unlevered basis) of $10.5 billion. Of course these are only the ones I could track down.
If anyone believes the credit cycle is nearing the end, that’s his/her prerogative, but for now there is no plausible data to back that up.
Thanks for reading.
ALSO READ: Corporate Credit Markets Continue To Party
Twitter: @FZucchi
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
