Consider the market rally that began in mid-June. Central bank tightening is nearing its end and inflation worries are likely to shift toward growth concerns, suggesting a typical late-cycle stage., We highlight our preferred positioning in the credit space as H2 approaches and favor opportunistically increasing exposure to quality IG credit as policy rates peak and the economy slows in Europe, rising inflation, tightening monetary policy, slowing global growth, and the decline in investor risk appetite. 48Refinitiv Global Focus Convertible Index; yield-to-maturity is currency-hedged. demand. Is this happening to you frequently? sector. Loan-only issuers could be the most vulnerable, as their Credit Suisse has not been slashing people in its investment bank this year: it's got 90 more employees than six months ago. Figure 4: CLOs Are the Primary Holders of U.S. Loans, Source: S&P Leveraged Commentary & Data, percentage of senior loan market, as of September 30, 2022. Inflation may remain elevated, putting pressure on the Fed to continue hiking interest rates: Tighter monetary policy and slowing economic activity should temper inflation, but endogenous factors (such as the lag in accounting 47Bank of America. WebEuropean Loan Market Snapshot Invesco Senior Secured Loans Monthly European loan market update: February 2022 The Credit Suisse Western European Leveraged Loan Index (CS WELLI or Index) returned -0.90% this month, generated by a principal return of -1.20% and interest return of 0.29%.1 This index tracks the investable market of the U.S. dollar denominated leveraged loan market. Compelling rescue lending opportunities are increasing: The opportunity set could expand further if markets continue to weaken. Bank of America says buy this little-known software stock that can rally 80% on strong A.I. By the end of July, the futures market had lowered the anticipated peak fed funds rate by approximately 50 bps and begun to price in a drop in short-term interest rates beginning in early 2023. (See Figure 8.) cuts, etc.) (See Figure 2. EM debt default rates continue to vary meaningfully between regions: The EM high yield bond corporate default rate in 2022 reached 10.3% in early October,41 driven by defaults in Russia and in the Chinese property Moving forward, we believe these combined characteristics minimal credit risk, limited near-term debt maturities, stable borrowing costs, and a low dollar price will make the BB-rated segment of the high yield bond market appealing to investors. Near-term default risk is fairly low in the U.S. and Europe, as companies have Wednesday May 31, 2023 9:10 am. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. 40BofA Global Research. 4JP Morgan. to become restrictive. Ukraine, slowing growth in China, elevated global inflation, and weakness in Western European economies. (WSJ). 18JP Morgan. Company Web site: http://www.creditsuisse.com, -By Katharina Bart, Dow Jones Newswires; +41 43 443 8043; [email protected]. Month stands for 21 trading days, year for 252 trading days. Phoenix analogies have been deployed by senior management and the weekend was spent working the phones to top investors and counterparties, some of whom reportedly even called in with messages of support. It must be closely monitored to detect changes in the drift regime. In other words, very little complete loss of capital. Old National relocates Louisville office following mass shooting in April, American Express brings back $1 million in grants for historic eateries, Adyen speeds payouts for gig workers and more in this week's banking news roundup. Other ETFs in the High Yield Bonds ETF Database Category are presented in the following table. However, the 2x ETF loses one third of its value, instead of 10% in the first case: Without a demonstration, it shows that the higher the volatility, the higher the decay. Data-driven portfolios and risk indicators. Tightening monetary policy could harm heavily indebted companies: Low-rated corporate issuers might struggle to roll over debt if rising interest rates and quantitative tightening slow the economy and cause financial conditions ), Figure 2: Relative Performance in Fixed Income Markets Has Been Driven by Rising Interest Rates, Source: ICE BofA US High Yield Index and Credit Suisse Leveraged Loan Index, as of September 30, 2022. See here for a complete list of exchanges and delays. and European floating-rate loans more attractive relative to fixed-rate assets. ultra-low interest rates by taking advantage of the generous capital markets in 2020 and 2021. Credit risk was punished: CCC-rated loans underperformed the broad market, primarily because of the extremely poor performance of a small subset of loans. NEW YORK, March 15 (Reuters) - Large U.S. banks have managed their exposure to Credit Suisse Pharmaceutical company Mallinckrodt Plc is considering options including filing for bankruptcy again as a $200 million opioid settlement payment is due within weeks, the Wall Street Journal reported on Friday citing people familiar with the matter. The following table includes ESG Scores and other descriptive information for all ETFs listed on U.S. exchanges that are currently tracked by ETF Database. On Friday, Credit Suisse seemed its same old self: a poorly performing bank with a share price down over 50% year-to-date, some issues retaining staff and a promise of major restructuring following the revelation of a new strategy at the end of this month. But these negative trends have been building for some time. (. While Deutsche increased risk weighted assets in its investment bank by around 10% in the second quarter, risk weighted assets at Credit Suisse's investment Julia Frank is joining Citigroup as a managing director in loans and leveraged finance, according to an the most significant margin erosion. It means UDOW has suffered a decay, which was dwarfed by the bullish trend. 39JP Morgan. U.S. high yield bonds offered yields above 7% at quarter-end, compared to roughly 6% at the beginning of the year.20, Yield spreads remain elevated: Although spreads contracted by roughly 40 bps during the quarter, they were wider than 500 bps at quarter-end, which is typically an indicator of growing stress in the market.21, The asset classs performance was highly volatile during the quarter: In July, European high yield bonds recorded their highest monthly return in two years. As of June 30, 2022. 13Credit Suisse, as of September 30, 2022. (See Figure 4.) Julia Frank is joining Citigroup as a managing director in loans and leveraged finance, according to an The average debt-to-EBITDA ratio in new U.S. loan transactions hit a record-high 5.5x in 1Q2022, above the 4.9x recorded 35Credit Suisse. Rising interest rates could prove challenging for highly indebted borrowers: The reference rates used in many loan contracts have risen significantly, so borrowers that didnt hedge their interest rate risk could Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. I wrote this article myself, and it expresses my own opinions. 30JP Morgan. Please note that the list may not contain newly issued ETFs. The next chart plots the 12-month drift of UDOW, starting one year after inception for calculation purposes (02/09/2011). The convertibles universe remains broad and diverse: While primary market activity has been limited for most of 2022, robust issuance in the previous two years has provided an expansive opportunity set to investors who Any investment involves substantial risks including If you have an ad-blocker enabled you may be blocked from proceeding. 17FTSE High Yield Cash Pay Capped Index. This morning, its shares are, Should you be worried? BothCFO Laurence Haddad and Gottstein said bonuses will be at the lower end of the range for 2021. They offer a 10% yield, have positive exposure to rising interest rates (unlike most fixed income), offer credit protections to manage downside risk, and have a low correlation with traditionalfixed income. 9 JP Morgan and Credit Suisse, as of September 30, 2022. It will be judging the market later this yearto see how well they can be syndicated, he said. Credit fundamentals in several sectors are deteriorating: Consumer-facing companies are especially vulnerable, as it has become challenging to pass through price increases to customers. monthly increase since March 2020.6. Updated: The Morningstar View Banking analyst Johann Scholtz doesn't think that Credit Suisse is at risk of failing and some corners of the market are getting carried away. Have a confidential story, tip, or comment youd like to share? 19JP Morgan. While Credit Suisse is unlikely to be Lehman(in the sense that its unlikely to go spectacularly and suddenly bankrupt), it is, however, likely to come out of this period in a very different shape to when it went in. Outflows from EM debt funds increased, offsetting the positive impact of slowing new issuance: During 3Q2022, primary market activity decelerated to the slowest pace in a decade. It doesn't help that the securitization business which is supposed to form the cornerstone of the capital raising is unlikely to be having a, adjustments to remuneration, including to past variable remuneration, the potential for disciplinary action and performance management as appropriate, Nikhil Goel, an M&A banker who left Credit Suisse last year, has rejoined after a short spate atAI-powered drugs companyAbsci Corp, where he was a director. the close of the second day, the underlying asset is back to its initial price: I/we have a beneficial long position in the shares of TLT, XBI either through stock ownership, options, or other derivatives. Compensation spending in the division was cut 13% year-on-year in the first half(implying a 20%+ cut to bonuses). Volatility may make losses long-lasting, or even definitive relative to an investors life expectancy (or just patience). This page includes historical return information for all ETFs listed on U.S. exchanges that are currently tracked by ETF Database. Aggregate Bond Index. 59The Office of National Statistics. 43Refinitiv Global Focus Convertible Index. , Tatiana Bautzer. appetite from CLOs which hold almost 60% of loans in the U.S.11 is one of the main reasons that volatility in the loan market is typically much less pronounced than that in the high yield bond market. Its daily 3X leverage factor on the Dow Jones is a source of drift, which may be positive or negative. persistent global inflation, and the increasing risk of a global recession. May 24, 2023, at 6:56 a.m. UBS Chairman Sees Gain in Customer Balances Following Credit Suisse Rescue. companies heavy reliance on floating-rate debt and the low average use of interest rate hedges.8 To make matters more challenging, many technology companies that borrowed through the leveraged loan market have generated little Michael Johnston is the co-founder and senior analyst at ETF Database, an online investment resource for ETF investors. In the case of the merger arbitrage strategy, there are some additional potential advantages to utilizing an ETN. Active management could be beneficial in this challenging environment: Extensive credit analysis may enable investors to identify securities that offer attractive risk-adjusted return potential. There can be no assurance that Oaktree will be able to implement the strategy described herein or, if implemented, it will lead to successful results. 63U.S. Department of the Treasury. This page includes historical dividend information for all ETFs listed on U.S. exchanges that are currently tracked by ETF Database. A good news: in a trending market, beta-slippage can be positive. Copyright 2022 Dow Jones & Company, Inc. All Rights Reserved. representation, and it should not be assumed, that past investment performance is an indication of future results. As such, it should be noted that this page may include ETFs from multiple ETF Database Categories. UDOW since inception, compared to the non-leveraged ETF DIA (Seeking Alpha). EM capital markets are While such loans may have Widening yield spreads could limit primary market activity in real-estate-backed securities: Issuers may be unwilling to offer the yields demanded by investors, limiting the opportunity set. While the ubiquity of covenant-lite loans could provide borrowers with flexibility during a downturn as companies obviously cant default on covenants Outright Forward Strike How it works At expiry, one of the following scenarios may occur: Underlying trades above the Strike But losses in the following two months erased this gain.25. All quotes delayed a minimum of 15 minutes. On Friday, Credit Suisse seemed its same old self: a poorly performing bank with a share price down over 50% year-to-date, some issues retaining staff and a promise of major restructuring following the revelation of a new strategy at the end of this month. Negative macroeconomic trends including persistent global inflation, tightening monetary policy, a surging U.S. dollar, and slowing consumption have weighed on financial markets in 2022. This article explains what "drift" means, quantifies it in more than 20 leveraged exchange-traded funds ("ETFs"), and shows historical data on UDOW. broker dealer, investment adviser or applicable agent or representative registration requirements), or applicable exemptions or exclusions therefrom. drivers of performance in the credit markets. Gottstein said Credit Suisse has been intentionally shrinking its investment bank. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions, Credit Suisse said. While banks may increase market share temporarily as other capital providers seek to reduce risk during this tumultuous period, we anticipate that the shift toward alternative financing will continue over the long term. Credit Suisse Asset Management is a leading active fixed income and currency manager providing innovative, customized access to a global fixed income To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. May 24, 2023, at 6:56 a.m. UBS Chairman Sees Gain in Customer Balances Following Credit Suisse Rescue. Estimated revenue for Credit Suisse is calculated by aggregating the estimated revenue of all Credit Suisse ETFs. Listed ETFs 0.65% - 0.95% Expense Ratio Range As of 05/10/2023 ETF Overview Overview Returns Fund Flows The opinions offered herein are not personalized recommendations to buy, sell or hold securities. You are leaving the Oaktree website and are being redirected to a third-party website. 62SIFMA. Moreover, wherever there is the potential for profit there is also the possibility of loss. With the rescue of European bank Credit Suisse, specifically, traders can look to get bullish on European equities once again. A fixed income investor presentation last week stressed that Credit Suisses 13.5% CET1 capital ratio at the end of June was already beyond the 9.6% required by Swiss regulators. Diversified Funding Base: Credit Suisse's funding benefits from its global wealth-management franchise, which results in a sound deposit base in addition to its domestic deposits. Calello said that the bankhasn't so far this year found itself left with any such loan that it provedimpossible to syndicate. Importantly, companies involved in these transactions were often more highly levered than they appeared on paper, as many used aggressive EBITDA adjustments (e.g., for synergies, cost 12ICE BofA, as of September 30, 2022. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The Emerging markets debt section focuses on dollar-denominated debt issued by companies in emerging market countries. A Credit Suisse spokesperson declined to comment. RBS has launched a suite of Trendpilot ETNs that are linked to indexes designed to replicate a trend-following strategy. Best & Worst Weekly Performers: June 30 Edition, Best & Worst Weekly Performers: June 2 Edition, This Week's ETF Launches: Crypto Expert Brian Kelly Launches His Own Blockchain ETF, Best & Worst Weekly Performers: May 19 Edition, Shorting the VIX: The Best Inverse VIX ETFs, VIX ETF Options: Leveraged, Inverse, and More, How to Allocate Commodities in Portfolios, Why ETFs Experience Limit Up/Down Protections. The lower the average expense ratio of all U.S.-listed ETFs for a given brand, the higher the rank. 8Based on a Bank of America study representing $1.5 trillion of debt, as of August 29, 2022. And many of those who like panicking (Redditors, Twitter pundits), are. Cyclical industries are experiencing A perfect double leveraged ETF goes up 50% the first day and down 40% the second day. rate risk is low. CEO, Ulrich Korner, told Channel News Asia on Wednesday: We are a strong bank. Julia Frank is joining Citigroup as a managing director in loans and leveraged finance, according to an internal memo seen by Financial News. Shriek. respectively.2 Importantly, if one strips out the impact of rising interest rates, the outperformance of loans shrinks dramatically. As we articulated earlier, fixed-rate assets have performed poorly in 2022 because duration has been the main protagonist in this years credit market drama. Income potential in the growth. In addition, it can take several months for firms to complete a proposed acquisition, meaning that a discount to reflect the time value of the month is often applicable to takeover targets. "We have a discriminating nature to the deals we have done, and we look atthem as if we hold the credits on our own balance sheet," This has caused a significant amount of EM debt to trade at dislocated prices, even when the issuers are fundamentally sound. 44Bank of America; gross issuance. Figure 1: Interest Rate Expectations Have Shifted Dramatically in Recent Months, Signal #1: Junk Loans are raising alarm bells, Rising interest rates have dominated the credit market story in 2022. CSMB will be linked to the same index underlying CSMA, but will deliver monthly returns equal to 200% of the change in the underlying index over that month. Its likely that many of these assumptions havent been borne out, due to the aforementioned negative economic trends. Despite the turbulent macroeconomic backdrop, demand to invest in loans has remained fairly robust, primarily because both the U.S. and European loan markets have a massive, stable buyer: collateralized loan obligations. 14 FTSE High Yield Cash Pay Capped Index, Credit Suisse Leveraged Loan Index, as of September 30, changes. A margin call is a demand from a broker to add more money to an account to cover potential losses. (See Figure 10).49. His comments came in the context of the dramatic slowdown in leveraged loans,the typical mechanism for most private equity deals. Lananh Nguyen is the U.S. finance editor at Reuters in New York, leading coverage of U.S. banks. You are leaving the Oaktree website and are being redirected to a third-party website. 2 Over 2018-21 Credit Suisse Credit Suisse is one of the world's leading financial services providers. Rising interest rates may support relative performance: The Federal Reserve, the European Central Bank, and the Bank of England are all likely to continue tightening monetary policy in the near term, which may make U.S. struggle to service their debt. I am not receiving compensation for it (other than from Seeking Alpha). is creating volatility but also some of the most attractive opportunities weve seen in years. The banks/hedge funds it's negotiating with aren't known for their charity and won't be inclined to cut a generous deal to a counterparty clearly in desperate need of a sale. It must be closely monitored to detect changes in the drift regime. 53JP Morgan; new issue only, so doesnt include refinancings and resets. Separately, and as we predicted in March, Barclays will be clawing back some of the bonuses it paid last year. Additionally, the lowest rating category (CCC and below) now represents only 11% of the market, five percentage anticipate that default rates in these markets will rise moving forward, they expect default rates will remain well below their long-term historical averages.27 Issuers fundamentals are fairly healthy despite the turmoil in UK markets. Bank stocks have been on a roller-coaster ride this week following the collapse of three U.S. lenders including Silicon Valley Bank and Signature Bank, the second and third largest bank failures in U.S. history, respectively. If the underlying index goes up 10% two days in a row, on the second day, it is up 21%: Beta-slippage is path-dependent. Credit Suisse and all other ETF brands are ranked based on their AUM-weighted average 3-month return. Ben Hernandez Apr 04, 2023 The dust appears to be settling from the recent bank failures over the past few weeks, giving investors more confidence. The par value reached $102.5 billion at the end of September, after spiking by $43.7 billion, the largest Market weakness could create attractive buying opportunities: Value-oriented investors may be able to identify bargains in this environment, as an increasing number of convertibles are trading below par. increasing already-elevated refinancing risks. negative. (See Figure 1.) Leveraged loans are represented by the Credit Suisse Leveraged Loan Index; Bonds are represented by the Bloomberg U.S. Source: Bloomberg, as of September 30, 2022 Note: The Goldman Sachs U.S. Financial Conditions Index gauges the overall looseness (lower number) or tightness (higher number) of financial conditions in the U.S. downgrades. If Credit Suisse was inclined to make its credit traders redundant before this, it will be even more so now. The cost of insuring banks bonds against default climbed about 15% last week. I am an individual investor and an IT professional, not a finance professional. There's an preset option on LinkedIn for wishing him the "Best of luck." 10JP Morgan. Responses to any inquiry that may involve the rendering of personalized investment advice or effecting or attempting to effect transactions in securities will not be made absent compliance with applicable laws or regulations (including Switzerlands second biggest lender said the un-named hedge fund defaulted on margin calls made last week by Credit Suisse and other banks. If all goes smoothly and the deal is completed, the strategy can deliver positive returns with low volatility. If the underlying index gains 50% on day 1 and loses 33.33% on day 2, it is back to its initial value, like in the first example. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. WebThe securities offer leveraged exposure to the positive performance of the Underlying and limited protection against a loss of principal, subject to the credit risk of Credit Suisse. Most investors are aware of some of the potential advantages and drawbacks of the ETN structure: Investors are exposed to the credit risk of the issuing institution, but are able to avoid tracking error that often exists in ETFs. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Credit Suisse and all other ETF brands are ranked based on their AUM-weighted average expense ratios. I am not receiving compensation for it (other than from Seeking Alpha). Credit Suisse and all other ETF brands are ranked based on their AUM-weighted average dividend yield. after the British governments plan for massive tax cuts caused a surge in UK government bond yields. For 2020, as of 3/31/20. What has You can use this tool to compare Credit Suisse ETFs with each other. However, performance in the loan market could be 10 JP Morgan. Sales Director - Outsourced Technology Services - Bay Area, Environment Specialists / Senior Specialists (for pooling only) (2662) (Base in Beijing), Portfolio Management Associates and Analysts (2642) (Base in Beijing), Investment Officer / Senior Officer - Private Equity (for pooling only) (3421) (Base in Beijing), JPMorgan's Daniel Pinto on when banking (and hiring) will recover, Deutsche Bank made an unexpected equities hire from Citi, Ex-UBS head of US electronic trading joins hedge fund, Inside Eisler Capital: the ambitious hedge fund where you may not last, Ex-Credit Suisse bankers are leaving London for Milan. 14FTSE High Yield Cash Pay Capped Index, Credit Suisse Leveraged Loan Index, as of September 30, 2022. Make yourself visible to recruiters hiring for jobs at institutions with a hefty central bank behind them. Such a technique often involves buying and selling securities based on momentum factors, which can result in material transaction costs and tax burdens. Finally, the low dollar price of high yield bonds may increasingly attract meaningful investor attention, even if other asset classes, such as loans, offer higher yields. In addition to expense ratio and issuer information, this table displays platforms that offer commission-free trading for certain ETFs. 45Bank of America. This risk is particularly noteworthy given that many companies with loans outstanding are carrying significant debt loads. Index components are weighted inversely to their risk in an attempt to build a risk-balanced allocation. Now, the tides are changing direction. Credit Suisse debuted a merger arbitrage ETN in October 2010, and CSMA has seen assets grow to about $55 million since then. ZURICH (Dow Jones)--Swiss bank Credit Suisse Group (CS) sought Thursday toallay fears of an international credit crunch, saying it is comfortable with itsposition as an issuer of leveraged loans. By accepting this document, you agree that you will comply with these restrictions and acknowledge that your compliance is a material inducement to Like CSMA, CSMB is structured as an exchange-traded note. Instead, loans generate more income as short-term interest rates rise. It is calculated as follows: Drift = (Return - (IndexReturn x At the end of September, the average price in the U.S. high yield bond market The Bank of England has intervened to ensure markets continue to function properly, but it has indicated that it will soon halt its emergency bond purchases, so volatility has persisted. CSMB is the fourth ETN in the Credit Suisse family; in addition to CSMA, the company also offers a long/short product (CSLS) and the Cushing 30 MLP ETN (MLPN). spread-widening would likely only occur if the economy were to continue slowing. 2Credit Suisse, JPMorgan, FTSE. Should you be worried? ACTION: Notice of exemption. My writings are data analysis and opinions, not investment advice. holders of many other asset classes, are almost never forced to offload assets. Numerous trends threaten to slow economic growth globally and push down equity prices: These include elevated inflation, declining consumer sentiment, tightening global monetary policy, the war in Ukraine, and the reduction 16The indices used in the graph are Bloomberg Government/Credit Index, Credit Suisse Leveraged Loan Index, Credit Suisse Western European Leveraged Loan Index (EUR hedged), FTSE High-Yield Cash-Pay Capped Index, ICE BofA Global Non-Financial HY European Issuers ex-Russia Index (EUR Hedged), Refinitiv Global Focus Convertible Index (USD Hedged), JP Morgan CEMBI Broad Diversified Index (Local), JP Morgan Corporate Broad CEMBI Diversified High Yield Index (Local), S&P 500 Total Return Index, and FTSE All-World Total Return Index (Local). Lessons from ProShares UltraPro Dow30 ETF history. See here for a complete list of exchanges and delays. Please. Higher-quality credits have been resilient: Yield spreads of A-rated credits have widened less significantly than those of lower-rated credits. ZURICH (Dow Jones)--Swiss bank Credit Suisse Group (CS) sought Thursday toallay fears of an international credit crunch, saying it is comfortable with For reprint and licensing requests for this article, Minnesota caps rates on payday loans with a wrinkle, House Republicans' crypto bill opens the door to more CFTC regulation, Venture capitalists look to B2B fintechs as investing market shifts, 29 banks that are the most important to the global financial system. In 2022, yield spreads have increased by 25-50bps, and leverage levels have fallen.58 Deal activity for larger companies (i.e., EBITDA $50mm) has declined significantly, due to (a) the slowdown in fundraising, (b) investors The following table includes certain tax information for all ETFs listed on U.S. exchanges that are currently tracked by ETF Database, including applicable short-term and long-term capital gains rates and the tax form on which gains or losses in each ETF will be reported. quarter-end.40. Positive drift follows a steady trend in the underlying asset, whatever the trend direction and the ETF direction. The drift went far in negative territory in the March 2020 meltdown due to whipsaw in the index daily returns. In fact, for most of 2022, the projected income from loans has exceeded the average yield on high yield Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. third parties and from transitioning Plan assets to an alternative asset manager as well as costs associated with any exposure to excise taxes under Code section 4975 the fed funds rate by 75 basis points, reiterating its commitment to fighting inflation. The firm raised $65 million in funding in a round led by Credit Suisse (CS) and Deutsche Bank may receive exposure to DCG equity in the form of stock appreciation The following table includes expense data and other descriptive information for all ETFs listed on U.S. exchanges that are currently tracked by ETF Database. Citigroup has hired a senior Credit Suisse dealmaker for its leveraged finance unit in Europe, as rivals continue to take on Some of this was inevitable: the bank is resizingthe prime broking business where the Archegos losses took place, and this drove equities sales and trading revenues 17% lower year-on-year, even when the Archegos loss wasexcluded. Gross issuance in the U.S. loan market totaled only $205 billion in the year through September, a roughly 68% decline YoY.10 The situation is similar in the European loan 55JP Morgan CLOIE BBB Index, JP Morgan CLOIE BB Index. WebOf particular relevance this year has been the fact that the loan market had an energy sector exposure of 3% at the end of February 2020, versus 12% for high yield (5). Recession risk is increasing: If the U.S. economy contracts, private equity sponsors may not inject capital into struggling companies like they did in 202021. This risk is deemed considerably higher than at other European banksand has risen another 100bps on Monday. downgrades and mark-to-market weakness. I have no business relationship with any company whose stock is mentioned in this article. Note that certain ETPs may not make dividend payments, and as such some of the information below may not be meaningful. As a result, eight major banks Nomura, Credit Suisse, UBS, Morgan Stanley, Deutsche Bank, Citigroup, BNP Paribas and Goldman Sachs are in a credit exposure bind for at least $50 billion. All of this is feeding through to pay. We fulfill and basically overshoot all regulatory requirements. But corporate structured credit significantly outperformed primarily fixed-rate asset classes.55, Primary market activity has slowed: Year-to-date issuance of commercial mortgage-backed securities totaled $91.3bn at quarter-end, lower than the $97.5bn recorded in the same period in 2021.57. As the Dow Jones has a correlation of 0.96 and a beta of 0.92 relative to the S&P 500 (based on daily returns), performance and risk metrics would be barely better for UDOW. In the midst of all this, Credit Suisse's new CFO Dixit Joshi, posted today that he's reporting for duty. Credit Suisse Leveraged Loan Index (CSLL) and the ICE BofA ML US High Yield Index (H0A0) as of June 30th, 2020. Web1/2 Leverage Forward (Example of a Buyer) Guaranteed hedge at the Strike (better than the Out-right Forward rate); however, the exposure is only partially hedged at the hedge rate. The worst 1-year decays are in biotechnology with LABU and semiconductors with SOXL: -19.81% and -19.57%. 42HSBC; 41% of EM investors are bearish about the near-term outlook for emerging markets, as of September 27, 2022. ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. Credit Suisse said it would provide an update on the matter in due course.. My Drift is the drift of a leveraged ETF normalized to the underlying index exposure in a time interval. More than half of U.S. consumers now use digital wallets, according to new data from J.D. 23S&P Global Leveraged Commentary & Data. As we noted (on Sunday), the catalyst for Credit Suisses new self seems to have been CEO Ulrich Koerners memo to staff on Friday that all is fine at Credit Suisse in terms of liquidity and capital. Credit Suisse announced the launch of its fourth ETN today, rolling out a product offering leveraged exposure to a merger arbitrage strategy. My Drift is the drift of a leveraged ETF normalized to the underlying index exposure in a time interval. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. Moreover, such "We have been investing in major hires across all divisions, including the investment bank," said CEO Thomas Gottstein this morning. The high-yield VIX is a ticker published by CBOE that tracks near-term volatility. 3S&P Leveraged Commentary & Data. CSMB joins a number of new ETNs that may address the potential tax inefficiencies of investment strategies. Senior Debt First claim on cash ows,last loss of (See Figure 3.) There have been worries about Credit Suisse's leveraged finance portfolio, which totaled $5.9bn on June 30th, and the bank's $75bn The merger arbitrage strategy has been a favorite tactic of hedge funds for decades, but its introduction in the ETP wrapper is a relatively new innovation. Is this happening to you frequently? Web9 Guggenheim InvestmentsHigh-Yield and Bank Loan Outlook Fourth uarter 2020 1 Summary With the economy gradually improving and monetary policy anchoring Treasury High inflation could harm companies fundamentals: Borrowers may struggle to pass along cost inflation to customers, a trend that could negatively impact companies earnings and leverage ratios. SUMMARY: The Labor Department previously issued several temporary individual prohibited transaction exemptions (PTEs) that allow certain Qualified Professional Asset Managers (QPAMs) related to UBS and Credit Suisse Group AG 31JP Morgan. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships. Private credit has benefited from investor demand for floating-rate debt: Rising interest rates have made private debt with floating rates appealing to investors, as coupons have increased and the debts interest This includes Nigeria, which recently announced that its Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. The yield on the 10-year Treasury note rose by 83 bps during the period.63. Defensive sectors could potentially offer attractive value if the macro backdrop deteriorates: Sectors such as financials and cyclicals typically outperform during economic downturns. Convertible bonds provided downside protection relative to equities: Although convertible bond performance was negative during the quarter, the asset class outperformed the global equity market.46, Primary market activity accelerated in 3Q2022: New issuance of convertibles globally totaled $14.8bn across 28 new deals during the period.47, Yields on convertibles have reached the highest level since 1Q2020: The average yield-to-maturity was 2.4% at quarter-end, reflecting a YTD increase of 370 bps.48 (See Figure 10.). 54JP Morgan. SUMMARY: The Labor Department previously issued More than 52% of the market is now rated BB (the level just below investment grade), ten percentage points higher than in 2012. Nonetheless, as economistNouriel Roubini points out today concerns about capital and liquidity can become self-perpetuating. market, as the war in Ukraine and related concerns about energy security and the regions economic health have caused primary markets to stall. and Saeed Azhar. She has spent nearly 10 years at Credit Suisse in leveraged finance and financial sponsors roles, having joined from Barclays in 2014. Approximately 85% of Figure 12: The Yield on the 10-Year UK Gilt Has Spiked in Recent Months, Source: Bloomberg, as of October 11, 2022, Tightening U.S. monetary policy negatively impacted investment grade credit in 3Q2022: U.S. Treasury yields moved higher during the quarter, as the Federal Reserve continued to hike interest rates to combat elevated inflation. CLOs have historically performed poorly during bouts of equity market weakness: Performance could continue to be negatively affected by numerous factors, including the conflict in Ukraine and related energy security concerns The ETF Database Ratings are transparent, quant-based evaluations of ETFs relative to other products in the same ETF Database Category. * Assets in thousands of U.S. 15FTSE High Yield Cash Pay Capped Index, as of October 24, 2022. specific threshold, cash flows to a CLOs equity tranche are typically halted.) Credit Suisse ETFs in the, This resource allows comparisons of potential, This tool allows investors to compare two ETFs head-to-head, presenting holdings, ETF Name. For comparison, less than one-quarter of loans are rated BB, while the vast majority are rated B, meaning a larger percentage are at risk of being downgraded into the lowest rating tier.13, Figure 5: Quality Has Improved in the U.S. High Yield Bond Market, Source: ICE BofA US High Yield Constrained Index, as of September 30, 2022, High yield bond issuers also benefit from having stable borrowing costs, which should help them weather a significant economic downturn better than companies that are mostly reliant on floating-rate financing. Such interpretations are liable to remain volatile as long as the macroeconomic picture remains murky., Performing Credit Quarterly 2Q2022: Shifting Gears. Treasury yields spiked late in the quarter Citigroup has hired a senior Credit Suisse dealmaker for its leveraged finance unit in Europe, as rivals continue to take on investment bankers from the Swiss lender after its acquisition by rival UBS. Covenant-lite loans are providing highly leveraged U.S. companies with flexibility: In recent years, high yield bond issuers have had ample access to loans with few restrictions or requirements. All content on ETF Database is produced independently of any advertising relationships. Our capital, our liquidity basis is very strong., (This story has been refiled to change headline from "is manageable" to "as manageable"). Have a confidential story, tip, or comment youd like to share? Haddad said deleveraging and cuts to risk weighted assets won't be repeated in the third quarter, but changes still looknecessary. Value-focused investors may thrive in this environment, but only if they have the capital and conviction needed to withstand the volatility as well as the ability to find signals and invest wisely despite all the macro noise. However, some African countries are struggling with their high debt burdens. And as we noted above, more dangers likely lie ahead. She joins in Frankfurt after more than 10 years at the Swiss bank and will report to senior leveraged finance bankers Paul Gibbs and Uday Malhotra. Eventually it will unless its offensive or libelous (in which case it wont.). Spectacular!! was around 83 cents on the dollar, more than eight cents lower than the average in the U.S. loan market.14 Its noteworthy that bonds are trading at this low price even though average spreads are still hovering near 500 bps.15 If yield spreads move closer to the recessionary norm, the average dollar price in the market will fall to an extremely low level by historical standards, increasing investors already-substantial total return potential. My Drift is the drift of a leveraged ETF normalized to the underlying index exposure in a time interval. REUTERS/Eduardo Munoz. There can be no assurance Oaktree will be able to maintain There is no standard or universally recognized definition for the drift of a leveraged ETF. There can be no assurance historical trends will continue. While analysts Yet if a borrower struggles to service its floating-rate debt, the companys problem can quickly become the loan investors problem. 50JP Morgan CLOIE BB Index. While caution is necessary when navigating such unsteady terrain, we also believe that the time to turn aggressive may soon be approaching. JPMorgan downgrades Target as concerns for the retail giant mount. 27JP Morgan. Bank stocks tumbled on Monday after assurances from U.S. President Joe Biden before jumping on Tuesday on hopes the worst of the market rout was over. See all our investments. "We have a discriminating nature to the deals we have done, and we look atthem as if we hold the credits on our own balance sheet," Paul Calello, head ofCredit Suisse's investment bank, said at a press conference here. enabled imprudent borrowing, access to this relatively unrestricted source of capital may make bond/loan issuers less likely to default on their bonds in the near term. 9JP Morgan and Credit Suisse, as of September 30, 2022. Companies that can generate consistent cash flow may be well positioned in an environment where access to U.S. dollar financing is limited. By Lananh Nguyen. Reduced earnings could negatively impact leverage ratios and potentially lead to credit rating In a digital age where information moves in milliseconds and millions of participants can transact Join ETF Database ELITE and Export This Data, Screen ETFs based on asset class, issuer, market cap, expense ratio, and more. years. The resilience of the largest banks around the world is considered essential to the ongoing safe functioning of the global financial system. As weve noted in previous editions of the Performing Credit Quarterly, borrowers may be able to handle elevated interest expenses in the short term. European banks may continue to lose market share: In recent years, European borrowers have increasingly turned to direct lenders and other non-bank capital providers, as traditional bank lending has declined due to regulatory (See Figure 9.) Since the end of the quarter, weve continued to see significant moves in financial markets, often based on modest changes in economic data and massive swings in investor sentiment. At quarter-end, the average price of A-rated bonds was near 88 cents on the The increase in spreads on Credit Suisses five year credit default swaps, from 57bps at the start of the year to closer 250 bps on Friday, implies a CHF300m a year increase in the cost of refinancing existing debt according to FT Alphaville (although some have put it even higher at closer to CHF500m). The primary cause was a significant drop in Treasury yields that, counterintuitively, began after the Federal Reserve hiked Steady But as we noted earlier in the year, floating rates are a double-edged (Bloomberg), Credit Suisse says there hasn't been aformal approach to any shareholders about issuing new shares. Elevated inflation could impair issuers fundamentals: Companies may be unable to pass along price increases to customers. when making these leverage calculations. Get started with a two-week free trial now. Hence, its name: "beta" is a statistical measure of volatility. Last updated on May 29, 2023. Credit risk appears to be higher in Europe: We believe the likelihood of a significant near-term recession is higher in Europe than in the U.S., given the formers energy security concerns and proximity to the war Following its accidental sale of $15.2bn of ETN securities and resultant loss of at least 450m as it bought them all back again, the bank has reportedly said that some of its people may face: "adjustments to remuneration, including to past variable remuneration, the potential for disciplinary action and performance management as appropriate, Nikhil Goel, an M&A banker who left Credit Suisse last year, has rejoined after a short spate atAI-powered drugs companyAbsci Corp, where he was a director. Wednesday May 31, 2023 9:10 am. UK markets are suffering due to negative economic trends and policy mistakes: The UKs annual inflation rate hit 10.1% in September.59 The disconnect between fiscal and monetary policy has caused significant Nor have people been leaving the bank as much as might be presumed from the reports of exits: Credit Suisse said its turnover rate is roughly the same as usual. If youre looking for a more simplified way to browse and compare ETFs, you may want to visit our ETF Database Categories, which categorize every ETF in a single best fit category. The table below includes the number of holdings for each ETF and the percentage of assets that the top ten assets make up, if applicable. Contact:[email protected] the first instance. Investor concerns mounted about rising interest rates, What happened? Clicking on any of the links in the table below will provide additional descriptive and quantitative information on ETFs. The asset classs performance continued to weaken in 3Q2022: Most global equity markets declined during the period, which caused convertible bond prices to fall. ProShares UltraPro Dow30 ETF (NYSEARCA:UDOW) is one of the most popular instruments to trade in bullish market conditions. Companies are facing the prospect of higher borrowing costs at If a brand changes its ETFs, it will also be reflected in the investment metric calculations. about oaktrees performing credit platform, Head of Performing Credit and Portfolio Manager, Managing Director, Multi-Asset Credit Product Specialist and Head of the Product Specialist Group, Oaktree Diversified Income Fund Inc. (ODIDX), Oaktree Emerging Markets Equity Fund (OEQIX), Performing Credit Quarterly 2Q2022: Shifting Gears. Exclusive news, data and analytics for financial market professionals, Reporting by Lananh Nguyen, Tatiana Bautzer and Saeed Azhar in New York; additional reporting by Davide Barbuscia; Editing by Megan Davies, Leslie Adler and Josie Kao, Analysis: Risk of US downgrade still on the cards despite debt deal, Wall St Week Ahead: Surging US megacap stocks leave some wondering when to cash out, UBS CEO warns of painful jobs decisions after Credit Suisse takeover, US employers boost hiring in May, but labor market losing steam, OPEC+ begins meetings that may agree further output cuts - sources, Canada facing rising threat from cyberattacks, defence minister says, Heavy rains continue to hit Japan, suspending some trains, Drugmaker Mallinckrodt may file for bankruptcy again, Wall Street Journal reports, United Airlines pilots union votes to authorize a strike vote. Most of the time, this factor defines a daily objective relative to an underlying index. 65ICE BofA US Corporate Index. I dont have the synthetic price series for UDOW before inception, but I have it for ProShares UltraPro S&P500 (UPRO). To manage all your complex and ever-expanding tax and compliance needs, it will be at the end... Than from Seeking Alpha ) or exclusions therefrom whose stock is mentioned this. Herein may place paid advertisements with ETF Database loan market could be 10 Morgan! An indication of future results dramatic slowdown in leveraged loans, the companys problem quickly! Suisse 's new CFO Dixit Joshi, posted today that he 's reporting for duty ; new only! Default climbed about 15 % last week underlying Index exposure in a time interval exemptions or exclusions.! Is limited will provide additional descriptive and quantitative information on ETFs 's an preset option on LinkedIn wishing! Their AUM-weighted average expense ratio and issuer information, this table displays platforms that commission-free! Lending opportunities are increasing: the opportunity set could expand further if markets continue weaken. Is necessary when navigating such unsteady terrain, we also believe that the bankhas so... Macroeconomic picture remains murky., Performing Credit Quarterly 2Q2022: Shifting Gears % and -19.57 % a merger strategy... Potential for profit there is also the possibility of loss necessary when navigating such terrain. A global recession are experiencing a perfect double leveraged ETF normalized to the underlying asset whatever... Is produced independently of any advertising relationships with each other relationship with any such loan that provedimpossible... Issuer information, this table displays platforms that offer commission-free trading for certain ETFs may be.! Positive drift follows a steady trend in the future, please enable Javascript and in. In addition to expense ratio of all U.S.-listed ETFs for a complete of... Place paid advertisements with ETF Database does not constitute individual investment advice Haddad said deleveraging and cuts to weighted! Has you can use this tool to compare Credit Suisse has been intentionally shrinking its investment.. Economic trends caused primary markets to stall seen assets grow to about $ 55 million since then,! Produced independently of any advertising relationships, wherever there is also the possibility loss! Assumed, that past investment performance is an indication of future results 8based on a bank of America says this. Nearly 10 years at Credit Suisse debuted a merger arbitrage ETN in October 2010, and content! Or advice is being given as to whether any investment is suitable for a complete list of exchanges and.. Was dwarfed by the Credit Suisse in leveraged finance, according to new data from J.D finance, to! Market conditions specifically, traders can look to get bullish on European equities once again likely that companies... 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Newly issued ETFs ETF goes up 50 % the second day the aforementioned negative economic.! Get bullish on European equities once again predicted in March, Barclays will judging., Ulrich Korner, told Channel News Asia on Wednesday: we a! I wrote this article joins a number of new ETNs that may the! A.M. UBS Chairman Sees Gain in Customer Balances following Credit Suisse and all other ETF brands are ranked based their... Its name: `` beta '' is a statistical measure of volatility not contain newly issued.. 3-Month return it ( other than from Seeking Alpha ) table below provide... A statistical measure of volatility factors, which was dwarfed by the bullish trend bps! Myself, and weakness credit suisse leveraged exposure Western European economies 13 % year-on-year in the future, please enable Javascript cookies. Etps may not be assumed, that past investment performance is no guarantee of future results dividend for! Suisse debuted a merger arbitrage strategy, there are some additional potential advantages utilizing... Down 40 % the second day ETF brands are ranked based on their AUM-weighted average 3-month return be closely to! Revenue for Credit Suisse and all other ETF brands are ranked based on their average. Rescue lending opportunities are increasing: the opportunity set could expand further if markets continue to weaken relationships... Is fairly low in the division was cut 13 % year-on-year in the was... This yearto see how well they can be syndicated, he said by aggregating the estimated revenue all!, traders can look to get bullish on European equities once again sectors could potentially offer attractive if! After inception for calculation purposes ( 02/09/2011 ) last year safe functioning of the banks! It provedimpossible to syndicate, wherever there is the potential for profit is. Web site: http: //www.creditsuisse.com, -By Katharina Bart, Dow Jones Newswires ; +41 43 443 8043 katharina.bart... The lower the average expense ratios % + cut to bonuses ), last loss of see. Slowing growth in China, elevated global inflation, and it expresses my own.... With ETF Database source of drift, which was dwarfed by the Bloomberg U.S, Ulrich Korner, Channel. Return information for all ETFs listed on U.S. exchanges that are currently tracked by Database! The largest banks around the world is considered essential to the underlying asset whatever! Day and down 40 % the first half ( implying a 20 % + cut to )... Has seen assets grow to about $ 55 million since then, which may well..., what happened if markets continue to weaken ETF Database is not a finance professional Oaktree and..., Ulrich Korner, told Channel News Asia on Wednesday: we a!
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