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Category - Fixed Income

    Two Oil Supertanker Giants Combine to Form World's Largest Fleet

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Frontline Ltd. and Euronav NV are considering an all-stock merger that would produce the world’s biggest tanker fleet, just as Russia’s invasion of Ukraine drives a recovery in the market.

    The creation of a tanker behemoth -- capable of carrying the equivalent of about 100 days of German daily oil demand -- would come at an opportune moment. With shippers shunning Russian vessels, demand for other carriers is increasing, boosting a market that’s languished for more than a year.

    Shares of both Frontline and Euronav have rallied this year, valuing a combined tanker company at more than $4.2 billion.

    “A combination of Frontline and Euronav would establish a market leader in the tanker market and position the combined group for continued shareholder value creation in addition to significant synergies,” John Fredriksen, who owns a 39% stake in Frontline, said in a joint statement on Thursday.

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    ECB Is Crafting a Crisis Tool to Deploy If Bond Yields Jump

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The ECB’s behind-the-scenes preparations hint at how officials are bracing for the moment when bond markets will need to cope without large-scale interventions for the first time after more than seven years of nearly uninterrupted asset purchases. 

    Policy makers stopped emergency bond-buying last month and aim to halt regular quantitative easing in the third quarter.

    The creation of a new crisis tool against a relatively benign market backdrop might mark a rare moment of the ECB getting ahead of the game rather than catching up under duress. By contrast, former President Mario Draghi’s OMT measure in 2012 and the Pandemic Emergency Purchase Program in 2020 were unveiled after financial turmoil had engulfed the region. 

    Already last year, policy makers discussed a precautionary instrument to prepare for so-called fragmentation risks, with officials from the region’s periphery lobbying for an unconditional purchase backstop, while peers from core countries insisted on some strings attached.

    The debate was resolved when the Governing Council deemed in December that extra flexibility in reinvesting bonds maturing from its emergency portfolio would be sufficient. But the imminent end of QE and heightened uncertainty about the implications of Russia’s war in Ukraine has reignited concerns among some policy makers.

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    State of Venture

    This report from CBInsights may be of interest to subscribers. Here is a section:

    $143.9B Total funding for Q1’22. Global funding to startups reached $143.9B in Q1’22, a 19% drop compared to the record-breaking Q4’21 — the largest percentage fall since Q3'12. However, Q1’22 was still the fourth-largest quarter for funding on record and its total was 7% higher than the same quarter in 2021.

    113 New unicorns. Q1'22 saw the birth of 113 new unicorns globally — a 5-quarter low and a slight drop from the 115 unicorns born a year ago in Q1'21. US and Europe accounted for most of the new unicorns, with 67 and 20 unicorn births, respectively. The highest-valued new unicorn was the US-based visual collaboration company Miro, with a valuation of $17.5B.

    49% Of all funding goes to the US. US-based startups received 49% of global funding in Q1’22, with a quarterly total of $71.2B. Despite accounting for almost half of all dollars invested, Q1’22 US funding marked a 5-quarter low for the country. US-based startups also drove a significant proportion of the deal activity, accounting for 37% of all deals in Q1’22.

    160% Climb in valuations. So far in 2022, companies raising new financing have gained a median valuation increase of 2.6x compared to their prior financing rounds. Median valuations of early and mid-stage deals also trended up, reaching $34M and $343M, respectively. For late-stage deals, however, the median valuation dropped to $1,054M in 2022 YTD — barely above the $1B mark crossed for the first time in 2021.

    -45% Drop in public exits. The number of exits via SPACs and IPOs decreased by 45% QoQ in Q1’22, while M&A activity remained elevated with 2,983 deals in total. US-based startups accounted for 40% of all exit activity in the quarter, followed by Europe at 34%.

    120 Tiger funded cos. Top investor. Tiger Global Management continued to be the most active investor in Q1’22. The firm invested in 120 companies, up from 107 in Q4’21. The largest investment Tiger participated in was a $1B Series D round to Checkout.com with 12 co-investors.

    91 IPOs in Asia, more than any region. Asia led globally in terms of IPOs, which were down for every region this quarter. Asia based companies accounted for 9/10 of the top IPOs in Q1'22, including 8 China-based companies. The largest IPO came from South Korean LG Energy Solutions, which exited at a valuation of $98B.

    -30% Decrease in megaround funding. Mega-rounds accounted for less total funding and fewer deals this quarter, consistent with broader VC trends. At $73.6B, total megaround funding represented just over half of all venture dollars invested in Q1'22, down from 59% in Q4'21.

    71% Jump in Philadelphia funding. Quarterly funding is down across all major cities and tech hubs in the US, except for Philadelphia, Atlanta, and Dallas. Among them, Philadelphia and Atlanta based startups saw the largest jumps in funding at 71% and 30%, respectively.

    20% Of funding goes to fintech. 1 out of every 5 dollars in funding went to fintech in Q1’22, despite investment in the sector shrinking quarter-over-quarter. The retail sector came second, accounting for 17% of all venture funding in Q1'22.

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    Brookfield to Purchase CDK for $6.4 Billion in All-Cash Deal

    This note from Bloomberg may be of interest to subscribers. Here is a section:

    Brookfield Business Partners agreed to buy CDK Global Inc., a provider of software for auto dealerships, in an all-cash deal with an equity value of $6.4 billion.

    The investment company said it will pay $54.87 a share for Hoffman Estates, Illinois-based CDK, according to a statement Thursday. The price was 12% higher than CDK’s closing price Wednesday, and 30% above where CDK traded on Feb. 18, just before speculation surfaced regarding a potential sale of the company. CDK shares rose 11% to $54.50 at 9:45 a.m. in New York.

    “CDK’s board of directors carefully evaluated a range of strategic and financial alternatives over several months and determined that this transaction is superior to all other available alternatives,” Chief Executive Officer Brian Krzanich said in the statement. 

    Brookfield, which has about $690 billion of assets under management, said the CDK transaction is expected to be completed in the third quarter. The deal’s enterprise value is $8.3 billion, according to the statement. 

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    One Trend Must Change Soon to Avoid a UK Recession

    This article from Bloomberg may be of interest. Here is a section:

    If the economy is going to avoid recession this year, consumers will need to dip into savings accumulated during the pandemic. So far, the evidence suggests this hasn’t happened. That’s worrying given the deep cost-of-living crisis facing the country.

    It’s well documented that the combination of enforced saving during lockdowns and massive government income protection programs has seen household balance sheets to balloon over the past two years.

    The cash, once seen as rocket fuel for the recovery, is now being viewed as a way for households to maintain the volume of goods and services they consume while inflation spirals.

    That’s what made the latest credit data from the Bank of England all the more concerning. As yet, consumers have shown no willingness to dip into the 200 billion pound slush fund they have amassed even though inflation continues to run well ahead of income growth.

    With inflation set to accelerate further those cash reserves will need to be drawn on if the economy is going to avoid falling off a cliff. In our forecast, we have assumed 10% of the stock of deposits is used over the next year, when the hit to spending power will be at its most intense. Consumption still contracts on a quarterly basis in 2Q and 4Q, but the economy avoids recession. About 25% of the pandemic savings are used over our whole forecast period to 2025.

    Of course, it may be that as the squeeze on household budgets intensifies, it forces people to use the cash. It’s also possible that rather than run down assets, households borrow. For low income workers, who weren’t able to bolster their savings during the pandemic, that may be the only option if they want to maintain their spending. With that in mind, it was notable that the same credit data showed a big increase in unsecured net borrowing.

    Still, with consumer confidence at levels that are normally associated with recessions, the worry is that caution prevails and the economy takes a far bigger hit than we expect this year.

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    Barclay's $600 Million Blunder Follows Years of U.S. Run-Ins

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Barclays Plc’s $600 million structured products blunder has little precedent on Wall Street. But the bank’s past misconduct may have set the stage for the paperwork fail it revealed this week.

    A key issue at the heart of the regulatory breach appears to be its loss of the so-called well-known seasoned issuer status in 2017, a right granted by the U.S. Securities and Exchange Commission that allows banks to sell notes in the U.S. with fewer filing requirements. 

    Since 2007, Barclays had faced the risk of losing this right at least five times in the aftermath of issues from dark pool disclosures to foreign exchange manipulation, an analysis by Bloomberg News shows. The bank had to repeatedly engage with the SEC over it and apply for waivers, so it didn’t lose this classification.

    Barclays isn’t the only bank to have engaged in such back-and-forth with regulators, and the loss of the WKSI approval explains how a limit breach could happen. But the years-long battle to keep that status raises ever more questions over how it could have overlooked one of the most expensive clerical errors ever. 

    The oversight is landing the bank with about 450 million pounds ($600 million) in expected expenses from buying back unregistered securities the bank sold, a halt to a booming U.S. business, possible regulatory fines that will deepen the pain, and a delay to a highly anticipated stock buyback.

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    Chinese Stocks in the U.S. Drop as Audit Dispute Drags On

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Chinese stocks listed in the U.S. fell Thursday after Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges.

    The Nasdaq Golden Dragon China Index dropped as much as 4.9%, with iQIYI Inc. and Baidu Inc. sinking more than 6% after being added late Wednesday to SEC’s growing delisting watch list. Alibaba Group Holding Ltd. fell 4.6%, while its e-commerce rivals JD.com Inc. and Pinduoduo Inc. slid more than 7%.

    U.S.-listed China stocks have steadied in recent trading after authorities signaled support to overseas listings and financial markets, yet investors remain on edge amid a long-standing dispute over whether American regulators can get full access to U.S.-traded Chinese company audits. In response to the SEC chair’s comments, China said talks with the U.S. accounting
    watchdog will continue.

    Under the Holding Foreign Companies Accountable Act, the SEC started publishing a provisional list of companies identified as running afoul of requirements with the first
    release in early March.

    “The growing provision list is a reminder that there’s a risk” and a reminder to do a risk check, TH Capital analyst Tian X. Hou said in an interview, noting that as investors become more familiar with the delisting situation, they will realize this is a routine check by the SEC under the new rules.

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    (Don't Fear) The Yield Curve, Reprise

    Thanks to a subscriber for this article from the Federal Reserve which may be of interest. Here is a section:

    It is not valid to interpret inverted term spreads as independent measures of impending recession. They largely reflect the expectations of market participants. Among various terms spreads to consider, the 2-10 spread offers a particularly muddled view. Especially in the present circumstances when the 2-10 spread is very much out of step with the near-term forward spread, which offers a much more precise view of market expectations over the next year and a half, it is difficult to concoct a reason to be concerned about the flattening of the 2-10 spread. In contrast, if and when the near-term spread does contract, we know that investors will then be expecting a cessation in monetary policy tightening. While such a shift in expectations could well be precipitated by future concerns about a recession, that need not be the case. A more benign cause would be a marked easing in inflation and inflation expectations that allow for a cessation of policy firming.

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    Barclays VIX ETN Turmoil Looks Linked to $591 Million Note Error

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    While the issuance halt initially triggered outsize moves for VXX -- including a 45% jump then reversal in a single session -- the ETN has been calmer as volatility across U.S. stocks retreated, helping prevent a potentially vicious short squeeze in the product. 

    All the same, since new cash can’t be added to either note the distortions can be significant. VXX closed at a record 24% premium on Friday, according to data compiled by Bloomberg. OIL has swung between a premium and discount amid major moves in the crude market in the past two weeks. It closed Friday at a 1.1% discount to assets.  

    VXX gained 2.4% in early trading as of 9:02 a.m. in New York. OIL was 3.2% lower.

    “This is a rare case of an exchange-traded product issuer dropping the ball and mismanaging their products,” said Todd Rosenbluth, head of research at ETF Trends. “Although it is no more likely to occur again this is another red flag for trading ETNs and not ETFs.”

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