The U.S. economy is troubled on multiple fronts. Unemployment remains high; real gross domestic product growth, low. Consumer confidence sank in August to its lowest level of the year. The political gridlock that helped trigger a downgrade of the nations sovereign-debt status last year seems more intense now, even as the U.S. hurtles toward a so-called fiscal cliff of spending cuts and tax hikes.
Notwithstanding all these negatives, however, bonds are booming. Global demand for U.S. Treasuries is brisk despite historically low yields, which fell in August in anticipation of a third round of quantitative easing. But the real surprise is the surge in corporate-credit offerings. Last month high-yield bond issuance soared to $27 billion $20 billion higher than its August average, according to New Yorkbased financial data-analytics provider Dealogic and investment-grade issues totaled $35 billion, $8 billion above their average for the month.
U.S. corporate credit has become a close substitute for a safe or credit-risk-free asset in a world where there are few safe havens left, observes Laurence Kantor, Barclayss New Yorkbased global head of research. But everything is relative: Five years ago Italian and Spanish government bonds, Fannie and Freddie debt, and mortgage-backed securities were all considered safe assets, he says. Since that is no longer the case, investment-grade corporate bonds have moved up the ladder as a safe asset, also reflecting healthy U.S. corporate balance sheets.
Companies have boosted their ledgers by borrowing or refinancing at bargain-basement rates, according to Lee Brading, head of credit research at Wells Fargo Securities in Charlotte, North Carolina. Although investment-grade corporate spreads to Treasuries may still be wide compared to historical levels, the absolute yield at which a company can tap the market is at all-time lows, so companies are jumping through this window of opportunity to strengthen balance sheets, he says. I had one company executive recently tell me it was like Christmas.
Joy is not everywhere in the world, of course. Uncertainty around Europe remains the most important issue driving markets, explains Terrence Belton, global head of fixed-income research at J.P. Morgan in Chicago. We continue to recommend underweights in peripheral Europe and overweights in U.S. credit, which we think can continue to perform well even as Europe deteriorates.
With so many developments to follow domestically and internationally money managers that invest in U.S. fixed-income securities often need assistance from analysts on the sell side. They tell Institutional Investor that no firm does a better job of meeting their needs than J.P. Morgan, which leads the All-America Fixed-Income Research Team for a third year running. The bank wins 51 total team positions, one fewer than last year but an even dozen more than Bank of America Merrill Lynch, which climbs one rung to second place even though its team-position total is unchanged, at 39.
BofA Merrills gain is attributable to Barclayss loss; the latter firm picks up six fewer positions this year 38 and in consequence slips to third place. Goldman, Sachs & Co. repeats at No. 4, with 23 spots (four fewer than last year), while Wells Fargo rises from sixth place to fifth after adding a whopping eight positions more gains than any other firm for a total of 20. Survey results reflect the opinions of more than 1,800 asset managers and buy-side analysts at 550 institutions overseeing an estimated total of $9.7 trillion in U.S. fixed-income assets.
To view the complete list of winning firms, click on the Leaders link located in the navigation table on the right. To view the top-ranked analysts and teams in each of the surveys 57 sectors, click on the Best Analysts of the Year. The full list of winners, including those ranked second, third and runner-up, is available to subscribers only.
For information about how we compiled this ranking, click on Methodology.