美国高级别债券与CDS2020年展望：情人眼里出西施

1、North America Credit Research26 November 2019High Grade Bond and CDS2020High Grade Bond and CDS2020OutlookBeauty is in the eye of the bondholderHigh Grade Strategy: Beauty is in the eye of the bondholder“Theres an old joke . . . two elderly women are at a Catskill mountain resort, and one of em says

2、, Boy, the food at this place is really terrible. The other one says, Yeah, I know; and such small portions.” Woody Allen, Annie HallSpread forecast: The quote summarizes our views on credit spreads arent particularly attractive, investors will struggle to fill their appetite bonds. We forecast YE 2

3、020 bond spreads at 125bp 140bp at the time writing. Drivers tighter spreads include the global search positive yielding assets and rapidly declining net issuance bonds. expectation slow but steady US growth and supportive monetary policy provide for a positive fundamental backdrop. BBB risks are co

4、ntained both with less issuance and concerted deleveraging efforts by the largest BBBissuers.Return forecast: Our UST and spread forecasts lead to a 2020 total forecast of 2.9% and excess return forecast of 240bps.HG supply forecast: We expect 2020 supply of $1.0tr, down 10% from an estimated $1.1tr

5、 in 2019. Bond maturities are $61bn higher in 2020 vs. so our forecast implies net bond supply of $267bn, down by $148bn (-36%)Relative value: We expect the rated spread relationship to compress as fundamentals improve and ratings trends react accordingly. We expect 10s30s non-financials to flatten

6、5bp to 40bp as bear- steepenmodestly.Sector recommendations: Of the 15 top-level sectors recommend overweights in Banks, Energy, Utilities, Consumer, Telecom, Media, Autos, REITs. We recommend underweights in Healthcare, Tech, Basics, Cap Insurance, Transports, Retail, and Cos.Key Risks: Valuations,

7、 geopolitics, elevated leverage, and the dollar. Spreads do not offer much cushion at these levels should the economy falter amid a host of potential geopolitical flashpoints. Valuations could also entice issuers to be more active. Single A issuers have not made much progress on reducing elevated le

8、verage. Foreign demand is somewhat conditional on a continued strongdollar.Credit DerivativesCDX.IG to trade at 50bp at the end of 2020, 3bp tighter than at the time of this writing, and to rally by 15c/7bp to $107.9/315bp (ex-DeanFoods).We expect CDX indices to underperform both cash and equities g

9、iven the tight index levels. We CDX indices are approaching a spread floor where using them to hedge risk is increasinglyattractiveUS High Grade Strategy & CDS ResearchEric Beinstein AC(1-212) 834-4211 HYPERLINK mailto:eric.beinstein eric.beinsteinKaveh Gharieh(1-212) 834-3493 HYPERLINK mailto:kaveh

10、.gharieh kaveh.ghariehPavan D Talreja(1-212) 834-2051 HYPERLINK mailto:pavan.talreja pavan.talrejaSheila Xie(1-212) 834-3036 HYPERLINK mailto:sheila.xie sheila.xieJ.P. Morgan Securities LLC2020Year-End Forecasts ThemeCurrent Forecast HGbondspread140bp125bpHG bond yield3.35%3.4%HG bond total return+1

11、3.3%+2.9%HG bond excess return+4.7%+2.4%10s30s spread curve45bp40bpCDX.IG 5y spread53bp50bpCDX.HY 5y spread322bp315bpCDX.HY 5y price$107.7$107.9CDS-Bond basis HG-32bp-25bpCDS-BondbasisHY-80bp-50bp HGgrosssupply$1.1tr$1.0trHGnetsupply$415bn$267bnSource: J. P. Morgan. Current is as of 11/15/19. Curren

12、t gross and net supply are 2019 full year estimates. CDX.HY is ex-Dean Foods.See page 69 for analyst certification and important disclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatmay a of the of as a in HYPERLINK / Table of Con

13、tents HYPERLINK l _bookmark0 2020Outlook Summary3 HYPERLINK l _bookmark1 SectorRecommendations13 HYPERLINK l _bookmark2 CreditSpreadCurves16 HYPERLINK l _bookmark3 Credit Fundamentals19 HYPERLINK l _bookmark4 Ratings Trendsand Outlook22 HYPERLINK l _bookmark5 Credit DerivativesStrategy25 HYPERLINK l

14、 _bookmark6 2020 High Grade BondIssuance Forecast31 HYPERLINK l _bookmark7 U.S.Banks44 HYPERLINK l _bookmark8 Finance Companies45 HYPERLINK l _bookmark9 YankeeBanks46 HYPERLINK l _bookmark10 Automotive47 HYPERLINK l _bookmark11 BasicIndustries49 HYPERLINK l _bookmark12 Consumer Products, Food/Bev, T

15、obacco51 HYPERLINK l _bookmark13 Energy52 HYPERLINK l _bookmark14 Healthcare54 HYPERLINK l _bookmark15 Insurance56 HYPERLINK l _bookmark16 Manufacturing, Aerospace& Defense57 HYPERLINK l _bookmark17 Media/Entertainment58 HYPERLINK l _bookmark18 REITs60 HYPERLINK l _bookmark19 Non-Food Retail,Food/Dr

16、ug Retail62 HYPERLINK l _bookmark20 Technology63 HYPERLINK l _bookmark21 Telecommunications64 HYPERLINK l _bookmark22 Transportation66 HYPERLINK l _bookmark23 Utilities68HG YE 2020 ForecastsCurrent Forecast Change HGspread140bp125bp-15bp CDX.IG5y spread53bp50bp-3bp HGTotal Return+13.3%+2.9%-10.4% HG

17、ExcessReturn+4.7%+2.4%-2.3%10s30sspreadcurve45bp40bp-5bp GrossSupply$1.1tr$1.0trNetSupply$415bn$267bn -$148bnSource: J. P. Morgan. Note: as of COB 11/15/19. Current return is 2019 YTD. Current gross and net supply are the 2019 full- year estimates. * Duration adjusted.2020 Outlook Summary: Modest sp

18、read tightening, less bond supply“Theres an old joke . . . two elderly women are at a Catskill mountain resort, and one of em says, Boy, the food at this place is really terrible. The other one says, Yeah, I know; and such small portions.”Woody Allen, Annie HallThis quote summarizes our view of the

19、High Grade credit markets going into 2020valuation is not particularly attractive, yet investors will struggle to fill their appetite for bonds. High Grade bond spreads are in the bottom 20% of their range since 2010, but HG bond net supply is going to be the lowest since 2009, if our forecast prove

20、s correct. This year it is likely to be down 37% from the peak year in 2016. Globally there is just over $18 tr of negative yielding bonds in the world, which is up 50% from the start of 2019, so the demand for HG credit is growing while the supply of it is shrinking. These trends lead us to believe

21、 that the hurdle rate for negative events to meaningfully push spreads wider is quite high. There are plenty of risks that might reach this hurdle, but they are not our base casescenario.JPMs economic and rates research teams are forecasting a benign environment for HG creditslow but stable growth,

22、a continuation of supportive monetary policy, and modestly higher UST yields. The technical situation puts us in a “no news is good news” environment for HG bond spreads, and essentially the JPM macro backdrop and our sector analysts views are that we will benefit from “no news.”We are cognizant tha

23、t the upcoming US election in November 2020 could have consequences for markets. However, in terms of how to position to begin 2020, we are not factoring in the election dynamics to our forecasts given the very wide range of outcomes at this juncture. As we progress toward the election, we will adju

24、st our view accordingly, if necessary.We estimate $36bn of fallen angels and $16bn of rising stars in 2020. This is up slightly from 2019 for fallen angels ($31bn in 2019) and down for rising stars ($32bn). Ratings trends have turned positive in 2019 for BBBs and remain somewhat negative for As. Whi

25、le fallen angel risk in 2020 is relatively stable compared to this year, we expect to see more deterioration from A-rated issuers, with $161bn of A/A- debt on review for downgrade whereas $76bn of BBB+ is on review for upgrade.On the positive side for HG bond spreads we highlight several factors, de

26、tailed in the pages that follow:Light HG bond supply in a world awash in negative yielding bonds: HG bond gross issuance to decline by 10% to $1.0tr in 2020 vs. 2019, and net supply to decline by 36% to $267 bn. Negative yielding bonds globally total nearly $18 tr with $3.9 tr of this maturing in 20

27、20. This is the anchor for spread direction in 2020, in our viewstrong demand and diminishing bondissuance.Slow but steady economic growth: J.P. Morgan economic growth forecasts for the US and globally are essentially a continuation of the slow but stable pace of 2019, and we expect monetary policy

28、mostly on hold with a bias toward easing in the US andEurope.Strong overseas demand: Foreign demand should remain strong for US corporate credit, given the global yield environment and the decline in FX hedging costs that has occurred in2019.Stable to Improving BBB credit metrics: Corporate credit m

29、etrics for the large BBBs should continue to improve even as overall market credit metrics are slowlyweakening.On the negative side for HG bond spreads we highlight several factors:Geopolitical risks: These include the US election, trade tension, Brexit, the Middle East, Hong Kong, etc. HG bond spre

30、ads had several periods of strength and weakness in 2019 driven by geopolitics. Spreads rallied in October with progress on US-China trade and Brexityet neither of these issues is fully resolved.Valuation: bond spreads at 140bp currently are at the tighter end of their 5yr range (108-254bp) and 10yr

31、 range (108-271bp). This is not easily justified by corporate credit metrics (see below). Instead it is primarily the result of strong market technicals. If/when slower growth or recession concerns rise, current spreads will likely appear tootight.Potential over-optimism on near-term corporate perfo

32、rmance: EBITDA HG non-Financial issuers in our analysis grew by 1.6% on a y/y basis through 3Q19, while debt grew by 6.7%. This was the weakest y/y revenue and EBITDA performance over the past three years. Equity analysts are expecting stronger earnings results, but this turnaround may be slower tha

33、nexpected.Corporate credit metrics: Leverage and other corporate credit metrics are elevated given the state of the economy. Our calculation of non-Financial leverage is at a multi-year peak, even as the largest BBBs are reducing leverage. If/when we experience a meaningful slowdown in US or global

34、growth, thefocus will likely shift to corporate leverage and ratings risks. That said, the trend for ratings in 2019 has been positive, for the first year infive.The rest of this document is organized into the following sectionsFactors supporting tighter High Grade creditspreadsFactors supporting wi

35、der High Grade creditspreadsRelative value across sectors andcurvesThe outlook for credit derivative indices, options, andtranchesSupply forecasts by sector with analystdiscussionSector recommendations with analystdiscussionSummary of positives and negativesPositives for HG creditNegatives for HG cr

36、editNet issuance expected to decline sharply, once againGeopolitical risk ever presentEconomic growth to be slow but steady in the US, modest rebound abroadValuations: Not much room for errorForeign demand should remain strong, absent a dollar correctionCredit metrics not well positioned for an econ

37、omic slowdownThe tide has turned for BBBsCorporate revenue and EBITDA trends are weakeningSource: J.P. Morgan.Factors supporting tighter High Grade credit spreads in 2020Net issuance expected to decline sharply, once again: We expect HG bond gross supply to be $1.0tr and net supply to be $267bn in 2

38、020. This is down $87bn (-8%) for gross supply and $148bn (-36%) for net supply from our YE 2019 gross supply forecast of $1.11tr and net supply forecast of $415bn. In our view, this isavery supportive technical as net supply will barely surpass estimated coupon flow for HG next year. Please see pag

39、e 30 for our full supply outlook.Exhibit 1: 2020 Gross issuance may be the lowestsince2013Exhibit 2: 2020 Net issuance may be the lowest since20090$bnFinancials700$bn$bnNet Financials247400250100-50-2002000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2000 2002 2004 2006 2008 2010 2012 2014 2016 201

40、8 Source for both: J.P. Morgan, Dealogic.Moreover, HG issuance is falling within the context of a broader decline in issuance across USD spread product, where we estimate that net issuance may fall just over 10% next year. At the margin, this should be constructive for spreads as it means HG is unli

41、kely to serve as a source of funding for heavy new issuance in other, less liquid markets such as structured products.IG corporates EM CorporatesBuild America Bonds Agency MBSABSMunisIG corporates EM CorporatesBuild America Bonds Agency MBSABSMunisHY corporates EM Sovereign Non-agency MBS CMBSCLOsPr

42、ivate Placements1,3621,101 1,1311,033Net Issuance across Fixed Income Products excl Treasuries and Agency Debt ($bn)2,5002,0001,5001,0005000-500-1,00020042006200820102012201420162018F2020Notes: For IG, the net issuance number excludes EM corporates. HY net issuance is calculated as gross issuance re

43、fis. The EM Corporates number includes IG, HY, and quasi-sovereigns and is only USD issuance. Additionally the issuance is adjusted for tender/buyback/call activity. EM sovereign net issuance in USD only, which is calculated using historical average of 80% of total net issuance. Munis figures reflec

44、t a change in calculation methodology post 2010, tax-exempt only. For CLOs, numbers represent US Arbitrage CLOs only. Non-agency RMBS includes the following sectors: legacy, jumbo 2.0, non-QM, CRT, SFR and RPL/NPL. Agency debt includes FNMA, FHLMC, and FHLB. For Agency MBS, the negative net issuance

45、 in 2010 is due to agency buyout of $200bn of delinquent loans backlog/ Fannie and Freddie didnt want to put up cash but were required to do the buyout. Treasuries include TIPS and represents net issuance to the public.Source: J.P. Morgan, Dealogic, Bloomberg, Bond Radar, Commercial Mortgage Alert,

46、INTEX, FNMA, FHLMC, FHLB, GNMA, LoanPerformance, US Treasury, Thomson SDC, S&P, SIFMA, Trepp.Economic growth to be slow but steady in the US, modest rebound abroad. US GDP growth is expected to come in at 1.7% in 2020, down from 2.3% in 2019. Essentially our forecast is for GDP growth in the US to c

47、ontinue on about the path that it has for the past couple of yearsneither too fast that it induces policy tightening nor too slow that it raises higher concerns aboutinflation.Our current economic forecasts envision a pickup in growth for the Eurozone as well as EM, with Eurozone growth expected to

48、trend up while EM growth is likely to notch up to 4.3% y/y, led by Asia ex-China as well as Latam. This scenario would represent a modest decoupling of domestic US growth from global growth, which could lead to some downside for the dollar. In our view, this could have negative ramifications for ove

49、rseas demand for US HG credit.Exhibit 4: Economic growth in the US forecast to be modestly slower but still solid in 20203Q194Q191Q202Q203Q204Q2020192020United States2.31.7Euro Area0.9China5.9UK0.7Japan0.2-Developed mkts1.71.4Emerging mkts3.9Global2.62.5Source: J.P. Morgan.With regard to interest ra

50、tes, our colleagues expect a relatively benign outlook, with one Fed rate cut taking place in 2Q20. We view the Feds reaction function as asymmetric, with higher odds of further rate cuts rather than another pivot toward rate hikes if growth rebounds.Additionally, our rates forecast includes modest

51、curve steepening as the more upbeat macro outlook outlined above unfolds. In our view, rates drifting higher from the current low levels with little to no prospect of a rate hike (in an election year) is a positive backdrop for credit spreads.Exhibit 5: We expect Fed to ease once in 2Q20 and curve t

52、o bullishly steepen in 2H20UST ForecastsCurrent4Q191Q202Q203Q204Q2020192020Fed Funds1.551.551.551.301.301.301.551.302-year T-note1.601.551.451.501.551.601.551.605-year T-note1.611.551.451.551.651.751.551.7510-year T-note1.771.701.701.851.952.051.702.0530-year T-bond02.402.452.502.202.50Source: J.P.

53、Morgan as of November 21, 2019.Foreign demand should remain strong, absent a dollar correction. starting point for framing foreign demand for US HG credit is that currently just trillion of government and corporate bonds globally are negative yielding, of which approximately 21% ($3.9 trillion) matu

54、res in 2020. The recycling of these maturities should create a solid underpinning for foreign demand in 2020 given that US represents 16% of the available positive yielding debt globally. Furthermore, the 75 bps of Fed cuts in 2019 have lowered FX hedging costs significantly in 2019. Given our outlo

55、ok for few major shifts in G10 interest rate policies in 2020, hedging costs should remain stable in2020.Exhibit 6: The stock of negative yielding debt globally has risen, putting downward pressure on US HG bond spreadsTotal negative yielding debt stock, US$ trillion15Total negative yielding debt st

56、ock, US$ trillion129630Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19Exhibit 7: US HG credit is 12% of the Global Aggregate index and 26% of its coupons paidSource for both: J.P. Morgan Note: Only index eligible debt included above.While FX hedging costs have declined, yields on offer in th

57、e US HG market have too, leaving the FX adjusted relative value for US HG significantly less attractive y/y. However, the recent backup in yields has begun to stabilize this dynamic, a positive in our view.Exhibit 8: The yield on USD HG credit after subtracting FX hedging costs has stabilized%JULI Y

58、ield hedged to%JULI Yield hedged toEURJULI Yield hedged toJPY4321-Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Exhibit 9: Unhedged: US HG credit yields remain attractive vs other High Grade bond marketsSource for both: J.P. Morgan. Note: FX hedging costs based on a 3m forward, annualized.Moreover, we b

59、elieve an incremental portion of overseas flows are conducted on an unhedged or under-hedged basis. As such, one of the most significant risks for overseas flows would be a sharp drop in the value of the dollar. This could occur via a number of potential catalysts: a rebound in non-US growth, a reth

60、ink of ECB/BoJ policy, a shift in Fed rhetoric, or political intervention (capital controls). The dollar has remained surprisingly strong in 2019 in spite of repeated interest rate cuts, owing to the notion that other central banks were following in the Feds footsteps toward easier monetary policy.