‘Expensive’ Credit Markets Hope for Stimulus Amid Earnings Salvo

Credit markets firmed Friday following robust fund inflows and slowing issuance, leaving investors with less compensation for rising macroeconomic and political risk as earnings season ramps up.

“The market is getting expensive,” Lale Topcuoglu, senior fund manager and head of credit at J O Hambro Capital Management in New York, said on Bloomberg TV Friday. “Credit market fortunes are closely tied to whether economic growth happens and what kind of stimulus package passes.”

Investors continue to bet that Washington lawmakers will deliver a financial spending bill to prop up the economy. However, White House economic director Larry Kudlow said Friday that “the ball’s not moving much right now” on negotiations over an additional round of federal stimulus.

Guggenheim Investments Chief Investment Officer Scott Minerd sees deteriorating credit conditions, with as much as $300 billion of corporate debt falling below investment grade by the end of next year. Boaz Weinstein, founder of Saba Capital Management, this week warned of credit market complacency and predicted an “incredible move” around the Nov. 3 U.S. election.

High-grade U.S. credit spreads tightened Thursday to the lowest since Feb. 28, even as rising virus cases threaten the economic rebound. The extra compensation investors get for credit risk hasn’t moved up since Sept. 25, data compiled by Bloomberg show.

‘Expensive’ Credit Markets Hope for Stimulus Amid Earnings Salvo

Intel Inc. stock plunged 10% Friday, dragging chipmakers lower, while American Express Co. also faltered on poor results. Earnings from a slew of bellwether corporate borrowers are due next week, and technology heavyweights including Apple and Amazon report on Thursday.

“I’m very sensitive to how the consumer is reacting and behaving,” said David Knutson, head of credit research for the Americas at Schroder Investment Management. “You’ve seen post depression knee-jerk reaction of grabbing liquidity and saving, and if that continues its going to have very negative ramifications for the broader economy.”

While earnings season is only just starting, about 77% of companies so far beat estimates, the highest proportion since 2010, Barclays strategists wrote in a note on U.S. and Europe results.

Texas Instruments Inc. -- viewed as a proxy for demand across the economy -- reported strong guidance for the fourth quarter, which should “read well for the rest of this earnings season,” JPMorgan Chase & Co. credit analysts led by Eric Beinstein wrote in a note Friday. Earnings have been mostly positive, with the exception of airlines, which are burning through cash, Beinstein wrote.


Business development companies are tweaking credit agreements to allow their borrowers to defer interest payments.

  • The divide over access to corporate credit — who can get it, and who can’t — is likely to deepen
  • Fitch Ratings says a WeWork default is a real possibility amid virus spread and uncertainty over whether Softbank would offer further support in a distressed situation
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas


The credit market saw the largest volume of bond sales since early September this week as junk-rated and investment-grade borrowers alike rushed to lock in funds to weather the pandemic.

  • Sales total more than 55 billion euros ($65 billion) since Monday, the eleventh time this year that weekly issuance has surpassed the 50 billion-euro mark
  • Cromwell European REIT postponed its inaugural euro-denominated bond sale, according to a person familiar with the matter. It’s the second pulled deal this week, following Turkiye Varlık Fonu, which shelved a U.S. dollar benchmark bond offering due to market conditions


Issuance of Chinese dollar bonds with a standby letter of credit reached a record high this year, as firms looked to exploit the repayment support mechanism that helps to lower borrowing costs. Sales of these notes reached $3.3 billion this year, according to data compiled by Bloomberg.

  • Brilliance Auto Group Holdings Co. failed to repay a yuan bond worth $150 million, Caixin reported, citing a company source
  • AXA Investment Managers Asia Ltd has a “neutral bias” toward Asia dollar bonds, weighing Covid-19 uncertainty and heavy market intervention by central banks and government stimulus

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