Weekly Supply & Flows Update
The calendar was dominated by BBB utility and energy companies for the week. The deals have the same three characteristics. 1. They are predominately in stable, low-beta names to the overall market. Given the still uncertain political and economic atmosphere, deals that should hold up relatively well in a higher volatility environment are at a premium. Utilities are generally more stable than more cyclical sectors as they collect monthly cash revenues from their ratepayers. Energy companies, although hurt by the decline in oil prices, are also generally seen as more defensive plays. 2. The deals have been priced to which likely reflects both the recognition of syndicate desks that it is currently a buyer's market and also the fact that at these low absolute funding yields, issuers are much less sensitive to spread levels. (Conoco, for example, was able to issue 10-year debt at an all-in cost of just 6.35%.) 3. There is still cash to be put to work. The technical story is still very much intact with record inflows into taxable fixed income funds in August and continued positive funds flows in September as investors allocated out of equities into debt.
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