Daily Agenda: Bond Sentiment Shifts as Corporate Issuance Soars

Sovereign yields rise as investors anticipate tightening; Aussie job data weak; U.K. limits foreign investment; Mylan meets Congress; Golfsmith files for Chapter 11.


A sudden rise in yields on sovereign debt in Europe, Asia and the U.S. seems to signal that many investors have concluded that current fixed-income valuations cannot be supported. As an unprecedented period of central bank intervention in bond markets comes to an end, despite low inflation and soft demand, determining where fair value is for debt instruments is likely to be a topic of debate. In the U.S., a steepening Treasury curve in recent weeks suggests that traders and portfolio managers see a move by the Federal Reserve this month as unlikely but that in the long term, gradual tightening is inevitable. This withdrawal from longer-dated U.S. debt was underscored by weaker-than-expected demand during the week’s 30-year Treasury auction. With the Bank of England keeping rates unchanged, according to today’s policy announcement and expectations that the Fed will follow suit, the market is showing a clear preference for short-term bonds. This signal has not been lost on corporations. As long-term yields have risen, more private-sector issuers have rushed to the markets anxious to lock in historically low rates while they still can. On Tuesday alone, more than $30 billion in fresh corporate bonds were issued in the U.S., making it the second-highest volume day year-to-date.

Australian job data weaker than hoped. Data issued today by the Australian Bureau of Statistics indicated that the job market cooled in August — winter in Australia — with a decline of 3,900 salaried positions versus consensus forecasts for a 15,000 gain. The headline unemployment rate, calculated using a different methodology, fell from 5.7 percent to 5.6, sending a mixed signal. The diverse geography of Australia often causes pronounced regional divergences in employment data and today’s report was no exception, with the state of Victoria gaining more than 20,000 new jobs despite the overall national decline. Philip Lowe faces an increasingly complex employment situation as he takes over as the governor of the Reserve Bank of Australia.

U.K. moves to limit foreign control over some investment projects. U.K. Business Secretary Greg Clark announced new controls over foreign investments in energy and infrastructure projects on Thursday. The move comes after new Hinkley Point nuclear plant, which includes French and Chinese backers, drew concerns from Prime Minister Theresa May over possible national security risks. The new rules will ensure that the U.K. government participates in all future deals involving certain critical sectors.

Mylan CEO faces Congress over EpiPen. Mylan Chief Executive Heather Bresch will appear before the House Oversight and Government Reform Committee on Capitol Hill later today. Mylan and Bresch came under sharp criticism over a sharp increase in the cost of its EpiPen anti allergic-attack product following legislation requiring U.S. schools to keep the product on hand. Bresch is the daughter of West Virginia Senator Joe Manchin.

Golfsmith bankruptcy underscores challenges for golf. Yesterday Golfsmith International Holdings filed for Chapter 11 as the golf-focused retail chain seeks to reorganize and find a buyer for assets. The Texas-based company listed debt and assets that each exceeded $500 million as it struggles with waning popularity for golf in the U.S. A combination of aggressive store expansion and a demographic shift that has seen millennials shun the sport, left the company overextended. In early August Nike, the world’s largest sporting goods producer, announced it was exiting the golf-equipment business after experiencing a greater than 8 percent year-over-year decline in the segment during the prior fiscal year.