U.S.:
Risky Business Set to Dominate High-Yield Bond Market in 2018
If 2017 is judged to be the year of big but boring refinancings for the European high-yield market, next year is shaping up to be a different proposition with leveraged buyouts and lower-rated credits expected to drive a bigger share of bond sales. Yield-hungry investors have embraced the glut of supply in Europe so far this year, helping borrowers secure ultra-low funding costs and negotiate favorable terms on their bond transactions. This has been fueling issuers’ appetite, and may open the door to more LBO-driven activity, as well as supply from “riskier” credits in 2018, bankers have said. “While in the first six months of this year people were hesitant, we are now starting to see risk appetite increasing with borrowers more confident to take advantage of the market conditions,” said Tanneguy de Carne, global head of high-yield capital markets at Societe Generale in London. “We’re telling sponsors and companies that now is the time to think about their financing plans.” De Carne says this message is now also being directed at triple C plus issuers, “something we couldn’t say so clearly” in the first part of this year. “We’re also sensing that investors are a lot more willing to consider and invest in more aggressive deals, difficult credit and turnaround stories,” he said.
Europe:
U.K. Manufacturing Sums Up Interest-Rate Dilemma for the BOE
For a picturebook example of the dilemma facing Bank of England policy makers, look no further than the U.K. manufacturing industry. On the downside for the economy, demand and confidence at factories is declining and investment is weakening, according to a survey from the Confederation of British Industry. But, in a sign of a potential squeeze that could intensify price pressures, the percentage of firms operating below capacity is the lowest in almost two decades and unit costs look elevated. The survey demonstrates the complexity of the economy that the Monetary Policy Committee is trying to negotiate as members diverge on the need for an interest-rate increase. Some, including Governor Mark Carney, say reduced growth potential poses an inflation risk and action may be warranted within months. For others, there’s little sign that headline price growth — fueled by the weaker pound — is filtering into wages.There’s also the fact that the economy appears weaker than in recent years, with data on Wednesday forecast to show expansion of 0.3 percent in the three months through September. That would match the pace of the previous two quarters, though it’s half the average since 2012.
China:
China’s home price growth steadies in September as speculative curbs weigh
China’s new home prices registered a second straight month of weak growth in September, with prices in the biggest markets slipping and gains in smaller cities slowing as government measures to cool a long property boom took hold. China’s housing market has been on a near two-year tear, giving the economy a major boost but stirring fears of a property bubble even as authorities work to contain risks from a rapid build-up in debt. While monthly price rises peaked in September 2016 at 2.1 percent nationwide, they have softened only begrudgingly since then, regaining momentum as buyers shrugged off each new wave of measures to curb speculation. Analysts say more tightening could still be expected in lower-tier cities with relatively fast price gains, as critics argue China’s ever-growing administrative control over its property market has only reaffirmed speculator views that prices will remain steady. “China’s property prices are still rising even as sales are falling off a cliff, which suggests the market still sees property as an investment product in the belief that the government won’t let prices fall,” said Yi Xianrong, a Professor of Economics at Qingdao University.