WEEKLY MARKET OUTLOOK JUNE 14, 2018 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. May’s High-Yield Bond Offerings Plunge as New Loan Programs Soar Credit Markets Review and Outlook by John Lonski May’s High-Yield Bond Offerings Plunge as New Loan Programs » 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 Full updated stories and key credit market metrics: The high-yield bond spread narrowed despite a hiking of the FOMC’s median forecast of year-end 2018’s fed funds midpoint from 2.125% to 2.375%. » FULL STORY PAGE 11 Ratings Round-Up Falling Investor Confidence Sinks Turkish Financials » FULL STORY PAGE 15 Market Data Credit spreads, CDS movers, issuance. » FULL STORY PAGE 18 Moody’s Capital Markets Research recent publications Links to commentaries on: Defaults, higher rates, profit growth, credit quality, foreign investors, internal funds, tariffs, borrowing restraint, corporate bonds, tax law changes, stocks and spreads, Greek drama, South Korea, Brazil sovereign credit. » FULL STORY PAGE 23 Credit Spreads Investment Grade: We see year-end 2018’s average investment grade bond spreads exceeding its recent 128 bp. High Yield: Compared to a recent 350 bp, the high-yield spread may approximate 425 bp by year-end 2018. Defaults US HY default rate: Moody's Default and Ratings Analytics team forecasts that the U.S.' trailing 12-month high-yield default rate will sink from May 2018’s 3.7% to 2.0% by May 2019. Issuance In 2017, US$-denominated IG bond issuance grew by 6.8% to a record $1.508 trillion, while US$-priced high-yield bond issuance advanced by 33.0% to a new record calendar-year high of $453 billion. For 2018’s US$-denominated corporate bonds, IG bond issuance may drop by 7.3% to $1.398 trillion, while high-yield bond issuance is likely to fall by 11.4% to $402 billion.. Click here for Moody’s Credit Outlook, our sister publication containing Moody’s rating agency analysis of recent news events, summaries of recent rating changes, and summaries of recent research. Moody’s Analytics Research Weekly Market Outlook Contributors: John Lonski 1.212.553.7144 john.lonski@moodys.com Njundu Sanneh 1.212.553.4036 njundu.sanneh@moodys.com Franklin Kim 1.212.553.4419 franklin.kim@moodys.com Yuki Choi 1.212.553.0906 yukyung.choi@moodys.com Moody’s Analytics/U.S.: Ryan Sweet 1.610.235.5213 ryan.sweet@moodys.com Moody's Analytics/Europe: Reka Sulyok +420.224.106.435 reka.sulyok@moodys.com Moody's Analytics/Asia-Pacific: Katrina Ell +61.2. 9270.8144 katrina.ell@moodys.com Editor Reid Kanaley 1. 610.235.5273 reid.kanaley@moodys.com CAPITAL MARKETS RESEARCH 2 JUNE 14, 2018 CAPITAL MARKETS RESEARCH / MARKET OUTLOOK / MOODYS.COM Credit Markets Review and Outlook Credit Markets Review and Outlook By John Lonski, Chief Economist, Moody’s Capital Markets Research, Inc. May’s High-Yield Bond Offerings Plunge as New Loan Programs Soar May 2018’s 52% year-to-year plunge by US$-denominated high-yield bond issuance to $20.96 billion grossly understated the overall pace of borrowing by high-yield companies. In stark contrast, May 2018’s newly-rated bank loan programs graded Baa or lower soared higher by 52% from a year earlier to a record $104.64 billion. The latter surpassed January 2017’s former zenith of $91.42 billion and was well above November 2007’s $81.80 billion high of 2002-2007’s business cycle upturn. By December 2007, the Great Recession was officially under way. (Because a number of Ba-rated high-yield issuers have Baa-rated bank loan programs, Baa-grade bank loans are included in this estimate of loans to high-yield issuers.) Across the broad rating categories, the $16.62 billion of May’s new loans that were graded Baa were the most since the $17.35 billion of March 2017, but merely half of May 2016’s record $33.43 billion. May’s new bank loan programs rated less-than-Baa increased by 37% annually to a record $88.02 billion. The latter eclipsed January 2017’s old zenith of $83.87 billion and topped November 2007’s previous cycle high of $79.10 billion. By high-yield rating category, $43.11 billion of May’s newly rated loans were graded Ba, $40.33 billion were graded single-B, and $4.58 billion received a rating of less than single-B. New bank loan programs from high-yield issuers have taken on a riskier hue. During the 12-months-ended May 2018, new loans graded less than Ba advanced by 17% annually to a record $348 billion as loans rated Ba shrank by 7% annually to $284 billion. Though new Baa-rated loans increased by 31% to $86 billion