credit high yield investment grade Macro Tourist

What’s Wrong With Investment Grade Credit? Some Possible Answers As Compiled By The Macro Tourist

"Whichever reason you are partial to, at least you now have a good list of excuses to pick from as to why IG is trading so badly."

"Whichever reason you are partial to, at least you now have a good list of excuses to pick from as to why IG is trading so badly."
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2 comments on “What’s Wrong With Investment Grade Credit? Some Possible Answers As Compiled By The Macro Tourist

  1. Lance Manly

    “we all know the story about how large multinational companies have been the largest investors in US dollar bonds overseas. With the passing of the recent tax reform package, companies are now incented to bring that cash back home to the United States. Hence, IG is offered.”

    Maybe we all have been told the story

    https://www.cfr.org/blog/tax-reform-q1-2018-bop-data
    “As interesting, if not more so, are the first reports of the tax rates that profit-shifting firms will pay under the new tax law.

    And, well, those reports don’t suggest that the firms have any real incentive to shift either their intellectual property or actual manufacturing back to the U.S.

    For example, a large pharmaceutical firm that has placed its intellectual property in Bermuda and seems to produce primarily in Puerto Rico (a part of the U.S., but outside the U.S. for tax purposes) and Ireland estimates that it will now pay a tax rate of 9%. That’s a lot lower than the tax rate it would pay if it located its intellectual property and physical production in the U.S.

    It is also lower than the global minimum tax rate of 10.5% on intangibles.

    The tax structure is pretty direct—put your IP in a really low tax jurisdiction, and sweep all the profits there, so that they don’t stay in the fairly low tax jurisdictions where manufacturing takes place, let alone the location of most sales. “

  2. Adam Waszkowski

    IG has been a head scratcher this year. While everyone’s focused on ratesratesrates, treasuries outperform similar maturity IG. Since IG has both credit and rate risk, it ‘must’ be credit risk. but here is an outside of the box idea: the problem in IG has been a decline in issuance. When there is good flow of issuance, bonds price well. IF there has been a decline in issuance, one could point at tax reform as the culprit. The corporate tax cuts have enabled companies to forego the usual borrow-to-fund-buybacks route this year, instead being able to use current (better) cash flow.

    This article indicates $1.7T issued in 2017; while on ly $500B in 2018, potentially a 40% decline. https://www.washingtonpost.com/business/economy/beware-the-mother-of-all-credit-bubbles/2018/06/08/940f467c-69af-11e8-9e38-24e693b38637_story.html?utm_term=.6d925bede9a8

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