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Japan Times
18 hours ago
- Business
- Japan Times
JSDA said to probe brokerages on unsuitable Japanese bond sales
A Japanese securities industry group is probing brokerages on inappropriate bond selling practices amid surging investor demand for higher-yielding corporate debt. The Japan Securities Dealers Association (JSDA), which helps oversee the sector, sent questionnaires to nine major local and foreign brokerages asking about bond selling irregularities, such as overstating to issuers how much demand there is for their debt, according to people familiar with the matter. The probe marks a step toward ridding Japan's primary bond market of opaque sales practices as rising interest rates in the nation boost investor appetite for debt with higher yields and companies rush to sell notes before borrowing costs climb further. Foreign participation in Japan's corporate and municipal bond markets is also growing, putting pressure on domestic brokerages to conduct sales in a way that follows global norms. "It's crucial for the market to function effectively as a price discovery mechanism,' said Yuuki Fukumoto, senior financial researcher at NLI Research Institute. "If it doesn't, investors will eventually pull out, and the market will face serious consequences.' Fukumoto also said that "issuers are struggling to keep up with rising interest rates,' and lead underwriters are caught "in a dilemma' between being pressured to keep issuance costs low and facing investors demanding higher yields. Steps to increase market transparency have been tried in the past. In a market where overstating demand is considered an open secret, the JSDA in 2021 required lead managers who are appointed by issuers to disclose investor demand data for corporate and municipal bonds. But some bonds aren't covered by the rule, including certain retail bonds and regional debt that are underwritten without a lead manager. The JSDA held a working group meeting in late March to discuss false reporting in such deals and began preparing a broader investigation, according to a document. The questionnaire asked securities firms whether they contacted investors about future bond offerings before official filings were submitted, or witnessed such activity, said the people, who asked not to be identified because they were discussing private matters. Responses were due by the end of May. A JSDA representative declined to comment. The association is especially interested in the scope of inappropriate practices in corporate note sales targeting individual investors, who tend to be less financially literate than institutions, the people said. Those kinds of questionable transactions were tolerated in past decades, when Japan's credit market was quiet, dominated by domestic professional investors with limited trading volume. But now with retail investors and overseas traders becoming more active in the market, increased disclosure looks necessary.
Yahoo
2 days ago
- Business
- Yahoo
Corporate Cash Levels Are Starting to Fall
(Bloomberg) -- The latest earnings period brought what might be an early warning sign about credit quality for high-grade US companies. Next Stop: Rancho Cucamonga! Where Public Transit Systems Are Bouncing Back Around the World ICE Moves to DNA-Test Families Targeted for Deportation with New Contract US Housing Agency Vulnerable to Fraud After DOGE Cuts, Documents Warn Trump Said He Fired the National Portrait Gallery Director. She's Still There. Cash levels at blue-chip companies are shrinking, when excluding results from the most-cash-rich corporations. Among members of the S&P 500 that have posted results, cash levels for the latest quarter fell nearly 1% compared with the last three months of 2024. That's according to a Bloomberg News analysis that focuses on non-financial companies with less than $30 billion of cash. The group's cash holdings, now at $1.14 trillion, have broadly been declining since the third quarter of 2023, when they peaked at $1.21 trillion. While companies are still generally performing well, shrinking cash levels can be a sign of business slowing and profits falling. That's a particular concern now as escalating trade wars potentially boost the cost of foreign inputs, weigh on profits, and increase inflation. Bond prices for many US companies leave little room for error. Spreads, or risk premiums, on US high-grade corporate debt averaged just 0.85 percentage point on Friday, the tightest level since March. The average level for the last two decades is closer to 1.5 percentage point. 'It's actually a dangerous position to be in,' said Michael Contopoulos, deputy chief investment officer at Richard Bernstein Advisors. 'If you bring down cash balances and you find yourself having to deal with higher inflation and higher volatility, your debt is going to get punished.' For the biggest cash generators, the story is different. Giants from Meta Platforms Inc. to Microsoft Corp. and Nvidia Corp. generally posted strong earnings this quarter. The top 12 biggest holders of cash saw their holdings rise about 1.4%, to around $756.7 billion. The dozen companies, which also include companies outside of the technology industry like Johnson & Johnson, each have more than $30 billion of cash and marketable securities on their books, and hold in total about 40% of the S&P 500's cash. The biggest companies can distort averages, and by some measures many high-grade companies aren't looking great. Leverage levels, for example, have been better about 80% of the time over the last two decades, a UBS Group AG analysis found. But by other measures companies are still performing well. Investment-grade firms are holding more cash as a share of their assets than they have on average over the past decade, according to data from S&P that analyzed North American companies. It's likely the behavior that has contributed to the declines in cash — such as boosting share buybacks — has reversed this quarter as companies prepare for a slowdown, Bank of America credit strategist Yuri Seliger said. That's why some money managers are stopping short of saying that it's time to prepare for the worst. 'You still want to be positioned in companies that have the ability to weather a range of scenarios, but at the same time, I don't think you want to price your entire portfolio to the worst possible outcome,' said Maulik Bhansali, senior portfolio manager at Allspring Global Investments. If any credit weakness were to hit, it would likely start with smaller companies, and in leveraged finance or even private credit, said Matthew Mish, UBS' head of credit strategy. A close look does show some signs of weakness, at least in the smaller firms. Corporate profits for domestic, non-financial companies declined by about 3% in the first quarter compared to the previous period, Bureau of Economic Analysis data shows. 'The large liquid megacaps have certainly outperformed,' Mish said. 'Under the hood, there certainly is a little bit more weakness.' Week In Review Elon Musk is selling $5 billion of debt to help fund his artificial intelligence startup xAI Corp., the latest in a series of fundraising efforts across his business empire as the billionaire pivots away from politics and returns to running his companies. As part of that bond and loan sale, xAI opened its books to investors, showing the company generated about $52 million of gross revenue in the first quarter, and lost $341 million before interest, tax, depreciation and amortization. The sale may be complicated by a very public feud between Trump and Musk. Hong Kong developer New World Development Co. is sliding deeper into distress after its recent decision to delay interest payments on some bonds, marking the latest flashpoint in a years-long crisis in China's property market. Hedge fund founder George Weiss filed personal bankruptcy months after a federal judge ruled he's liable for more than $100 million in debt his eponymous firm owes Jefferies Financial Group Inc. JPMorgan Chase & Co. is sounding out investors for an almost $2 billion loan for Trucordia, the latest instance of a Wall Street bank refinancing debt that insurers initially secured from private credit firms. A group of Wall Street banks, led by Jefferies Financial Group Inc. and UBS Group AG, have started pre-marketing more than $1 billion of debt to fund Bain Capital's acquisition of restaurant chain operator Sizzling Platter. Owens & Minor, a distributor of medical supplies, canceled its planned purchase of Rotech Healthcare Holdings, sending its bonds on a wild ride. Notes it sold in April, with a 10% coupon and due 2030, dropped, because they can be redeemed at par and had been trading above face value. Many other securities the company had sold rallied. Banks and private credit funds are competing with each other to provide as much as €2.5 billion ($2.9 billion) of debt to insurance broker Diot-Siaci Group. Clearlake Capital-backed Wellness Pet Company snagged fresh financing and completed the first step of a debt deal that involves creditors taking a reduction in the value of the original amount they lent. German autoparts maker ZF Friedrichshafen AG pulled in more than €4.5 billion ($4.6 billion) in orders for a new bond sale, signaling strong investor support for shoring up its finances during a rocky stretch for the sector. Delta Air Lines Inc. sold $2 billion of investment-grade bonds Thursday to help repay a government loan it took out during the pandemic to pay employees. A $2.15 billion leveraged loan has been launched to help fund the planned acquisition of Colonial Enterprises Inc. Bankrupt genetic analysis company 23andMe will hold a second auction for its cache of DNA data with an opening bid of $305 million from a group led by the company's former chief executive officer, Anne Wojcicki. A subsidiary of Sunnova Energy International Inc. filed for bankruptcy in Texas as its parent struggled to convince creditors to give it funding to turn around its business in an out-of-court process. EchoStar Corp., the wireless and pay-TV operator controlled by billionaire Charlie Ergen, has decided to skip interest payments on three bonds after skipping another late last week. On the Move MUFG Securities Americas Inc. has hired two longtime leveraged loan bankers — Adam Hoffman and Roger Gilbert — as it continues to grow that business. Hoffman joins as head of loan trading while Gilbert will serve as head of loan sales. Both previously worked at Macquarie Group Ltd., which shuttered its US debt capital markets arm earlier this year to focus on private credit. Lane42 Investment Partners founder Scott Graves is building out his senior leadership team, hiring former CVC Capital Partners and Oaktree Capital Management employees to add to the asset manager he founded earlier this year. London-based hedge fund Redhedge Asset Management LLP has hired two portfolio managers amid growing US investor interest for European credit. Won Choi joined from Maven Investment Partners to oversee credit opportunities and special situations. Nick Campregher, formerly at ExodusPoint Capital Management, started last month and is focusing on financials. Before moving to the asset management industry, he had spent about a decade at UBS Group AG as a trader and risk manager. --With assistance from Tom Contiliano. Cavs Owner Dan Gilbert Wants to Donate His Billions—and Walk Again The SEC Pinned Its Hack on a Few Hapless Day Traders. The Full Story Is Far More Troubling Is Elon Musk's Political Capital Spent? What Does Musk-Trump Split Mean for a 'Big, Beautiful Bill'? Cuts to US Aid Imperil the World's Largest HIV Treatment Program ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
07-05-2025
- Business
- Bloomberg
UBS Cuts Bond, Loan Sale Outlook by $235 Billion on Trade Tumult
UBS Group AG lowered its forecast for US corporate debt issuance this year, citing volatility tied to President Donald Trump's tariff rollout and a slower-than-expected pace of dealmaking. The bank's research arm cut its estimate for blue-chip debt sales by $100 billion to $1.4 trillion, strategists led by Matthew Mish wrote in a report. It now sees $250 billion of junk-bond issuance, down from $310 billion prior, and $400 billion in leveraged loan sales, versus $475 billion previously.
Reuters
06-05-2025
- Business
- Reuters
Pockets of US credit markets flash warnings despite upbeat tone, says BlackRock
BEVERLY HILLS, California, May 6 (Reuters) - Pockets of the U.S. corporate debt market are flashing warning signs that a cooling economy is squeezing the most fragile borrowers, a BlackRock executive said, despite broader market hopes that the turbulence from tariffs has subsided. Credit spreads - the premium investors demand to hold corporate debt rather than safer U.S. government bonds - spiked last month after President Donald Trump announced tariffs that sparked market volatility and fears of a sharp economic slowdown. But spreads have tightened in recent weeks, as the U.S. administration signaled a softer stance on tariffs and raised the possibility of imminent trade deals. Still, some signs of the financial health of CCC-rated companies - the market's riskiest borrowers - have deteriorated to the point that their earnings are not high enough to allow them to service their debt, said Amanda Lynam, head of macro credit research within the Portfolio Management Group at BlackRock (BLK.N), opens new tab, the world's largest asset management firm. "There are pockets that we are watching very carefully," she told Reuters in an interview. "There are companies that have less of a financial cushion, and you have to tread more carefully, because if and when we see a downshift in economic activity, they could be more vulnerable." Lynam spoke to Reuters late on Monday on the sidelines of the Milken Institute Global Conference taking place this week in Beverly Hills, where Wall Street executives and company chiefs struck a better-than-feared tone on the U.S. economic outlook. High-yield credit spreads widened to 461 basis points last month after Trump's imposition of steep tariffs - their widest since early 2023, when turmoil in the regional banking sector rocked U.S. markets. They have since retreated and were last at 360 basis points, according to the ICE BofA US High Yield Index (.MERH0A0), opens new tab. The retreat was partly due to renewed market optimism on the U.S. economy and its ability to withstand policy uncertainty, said Lynam. Also, several investors had long been waiting for corporate debt valuations to drop as an opportunity to add exposure more cheaply, she said. "There's a lot of money on the sidelines and a lot of investors share, I think, a common view that fundamentals are pretty good, and want to wait for a decent entry point. When you have those periods of widening, (spreads) snap back quickly because that money is getting deployed," she said. Still, valuations in credit markets could be impacted by a "more challenging growth and inflation backdrop," she said, with Trump's trade policies seen as key in determining the economic outlook. "What this all boils down to is growth," said Lynam. Separately, Purnima Puri, a governing partner at HPS Investment Partners, a credit investment firm, said on Tuesday the recent retrenchment in credit spreads was unlikely to last. BlackRock announced late last year that it planned to buy HPS for about $12 billion. "When we're looking at the market and tariffs and trade and inflation and then growth ... we don't think that the spread retrenchment is sustainable," she said on stage at the Milken event on Tuesday.
