WEEKLY MARKET OUTLOOK DECEMBER 7, 2017 CAPITAL MARKETS RESEARCH Moody’s Analytics markets and distributes all Moody’s Capital Markets Research, Inc. materials. Moody’s Capital Markets Research, Inc is a subsidiary of Moody’s Corporation. Moody’s Analytics does not provide investment advisory services or products. For further detail, please see the last page. High-Yield Borrowing May Slow Following 2017’s Boom Credit Markets Review and Outlook by John Lonski High-Yield Borrowing May Slow Following 2017’s Boom. » FULL STORY PAGE 2 The Week Ahead We preview economic reports and forecasts from the US, UK/Europe, and Asia/Pacific regions. » FULL STORY PAGE 6 The Long View Check our chart here for forecast summaries of key credit market metrics. Full updated stories, “Since 1995, US$-IG bond issuance fell annually in only two of the 15 years overlapping mature economic upturns,” begin on page 13 . » FULL STORY PAGE 14 Ratings Round-Up by Njundu Sanneh Downgrades Trending, but... » FULL STORY PAGE 19 Market Data Credit spreads, CDS movers, issuance. » FULL STORY PAGE 21 Moody’s Capital Markets Research recent publications Links to commentaries on: Saudi Arabia, defaults, credit/stocks, China, yields/prices, debt/growth, Spain, upside surprise, bulls, less fear, Fed & BoJ, inflation, market triggers, hurricanes, data in sync, Harvey, inflation, yields, Korea, jobless rate, spreads, Saudi Arabia. » FULL STORY PAGE 26 Credit Spreads Investment Grade: Year-end 2017 spread to exceed its recent 106 bp. High Yield: Compared to a recent spread of 364 bp, it may approximate 375 bp by year-end 2017. Defaults US HY default rate: Compared to October 2017’s 3.2%, Moody's Default and Ratings Analytics team forecasts that the US' trailing 12-month high-yield default rate will average 2.2% during 2018’s third quarter. Issuance In 2016, US$-IG bond issuance grew by 6.5% to a record $1.504 trillion, while US$-priced high-yield bond issuance may increase by 31.7% to $449 billion. For 2017, US$-denominated IG bond issuance may rise by 7.3% to a new zenith of $1.514 trillion, while US$-priced high-yield bond issuance may increase by 27.0% to $433 billion, surpassing 2014’s record $435 billion. Click here for Moody’s Credit Outlook, our sister publication containing Moody’s rating agency analysis of recent news events, summaries of recent rating changes, and summaries of recent research. Moody’s Analytics Research Weekly Market Outlook Contributors: John Lonski 1.212.553.7144 john.lonski@moodys.com Njundu Sanneh 1.212.553.4036 njundu.sanneh@moodys.com Franklin Kim 1.212.553.4419 franklin.kim@moodys.com Yuki Choi 1.212.553.0906 yukyung.choi@moodys.com Moody's Analytics/Europe: Tomas Holinka +420 ( 221) 666-384 Tomas.holinka@moodys.com Barbara Teixeira Araujo +420 (224) 106-438 Barbara.TeixeiraAraujo@moodys.com Moody's Analytics/Asia-Pacific: Katrina Ell +61 (2) 9270-8144 Katrina.ell@moodys.com Faraz Syed +61 (2) 9270-8146 Faraz.syed@moodys.com Editor Reid Kanaley 1. 610.235.5273 reid.kanaley@moodys.com CAPITAL MARKETS RESEARCH 2 DECEMBER 7, 2017 CAPITAL MARKETS RESEARCH / MARKET OUTLOOK / MOODYS.COM Credit Markets Review and Outlook Credit Markets Review and Outlook By John Lonski, Chief Economist, Moody’s Capital Markets Research, Inc. High-Yield Borrowing May Slow Following 2017’s Boom A fundamentally excessive climb by interest rates is one of the bigger threats to 2018’s positive outlook. Lately, financial asset prices have been advancing in response to the expectation that 2018’s widely anticipated rise by benchmark borrowing costs will be manageable. In all likelihood, a Powell Fed will avoid taking preemptive action against a hypothetical jump in inflation risks unless the Treasury bond and foreign exchange markets demand otherwise. For now, the latest flattening of the Treasury yield curve reflects increased confidence in the long-term containment of inflation expectations. High Yield Bond Offerings Surge About $43 billion of US$-denominated high-yield bonds were issued globally in November 2017 as inferred from data supplied by Dealogic and processed by Moody’s Capital Markets Research Group. November 2017’s tally easily surpassed November’s prior record high of $37.2 billion from November 2014. The issuance of high-yield bonds still proceeds briskly. Through the first four business days of December, at least $10.75 billion of US$-denominated high-yield bonds were offered. If only because December’s high-yield bond issuance declines by 30%, on average, from November, December 2017’s final tally for speculative-grade bond offerings could approach the record $32.6 billion of December 2013. Refinancings of short- and long-term debt served as the primary driver of January-November 2017’s 33.5% year-over-year surge by US$-denominated high-yield bond issuance to a record $425 billion. For a sample covering Janua