Credit spreads widened in corporate bond markets amid a July 19 selloff that also saw US Treasuries rally, signaling a shift in risk appetite. "This was just a hiccup. We continue to believe spreads are reasonably attractive particularly compared to the rest of fixed income," said John McClain of Diamond Hill Capital Management.
Foreign investors are putting money to work in US corporate debt markets, with 2021 on pace to become a record-setting year. "To put this number into context, foreign buying in the first five months of 2021 alone has almost exceeded the previous full-year record of $135 billion set in 2015," according to Lotfi Karoui of Goldman Sachs.
The financial health of US companies has improved, thanks in part to government programs designed to protect the economy throughout the coronavirus pandemic. Leveraged and high yield loan issuance in the US is at a record pace, and the investment-grade market remains active.
The Alternative Reference Rates Committee has released conventions and use cases for the Secured Overnight Financing Rate based on overnight collateral and repo rates and plans to allow use in derivatives contracts. "Once the SOFR First swaps convention switches on July 26 and the ARRC formally recommends the SOFR Term Rates, market participants should have what they need to use SOFR in all its forms across financial markets, including the use of the SOFR Term Rates for business loans," according to a statement from ARRC Chair Tom Wipf.
Banks in the US should be prepared to make loans based on several different rates after the phase-out of Libor has been completed, industry experts say. "The [Alternative Reference Rates Committee] has recommended [the Secured Overnight Financing Rate], but the Federal Reserve has said there may not be a single alternative rate, and some rates could be better for certain market participants and transactions than others," said Chris Ekonomidis, director of BNY Mellon's Libor Transition Program.
Environmental, social and governance assets are on track to account for more than one third of total assets under management worldwide, according to the ESG 2021 Midyear Outlook report by Bloomberg Intelligence. ESG assets passed the $35 trillion mark last year.
Fund managers in the US are making changes to their investment products to comply with the EU's Sustainable Finance Disclosure Regulation. "I have US managers who are very aware of SFDR and who are designing SFDR Article 8 products which have nothing to do with what potential US ESG regulation (requires), it's entirely driven by what the EU investors are looking for," said Leonard Ng, co-head of the UK/EU financial services regulatory group at Sidley Austin.
A Schroder Investment Management survey of 750 institutional investors finds 80% think environmental, sustainable and governance investing is challenging, with a large number citing greenwashing as a major hindrance to their acceptance of it. While 47% said they are interested in funds specifically aligned to environmental themes, the survey shows major concerns over transparency and the difficulty of assessing and managing risk.
5 Trading Trends Changing the U.S. Credit Market Trading credit will never be the same. Learn how emerging technologies adopted as an immediate response to the pandemic crisis are now becoming the foundation for an entirely new approach to credit trading. Access the report >>
The Basel Committee on Banking Supervision has released a consultation on proposed technical changes to how global systemically important banks are reviewed in order to reflect changing risk factors. The Basel Committee plans to take comments on the proposed changes through September 3.
The European Banking Authority plans to release a discussion paper and consultation by the end of the year on the use of machine learning techniques by banks for calculating credit risk capital requirements. The discussion paper aims to clarify how national regulators should consider machine learning systems when interpreting the Capital Requirements Regulation.
The US Securities and Exchange Commission should not be regulating company disclosures of their environmental, social and governance impacts, SEC commissioner Hester Peirce told an online event. "As with past regulatory efforts to drive investment toward particular sectors, current efforts to green the financial system could precipitate future financial instability," she said.
The IACPM is an industry association established to further the practice of credit exposure management by providing an active forum for its member institutions to exchange ideas on topics of common interest. Learn more at