WEEKLY MARKET OUTLOOK APRIL 23, 2015 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. Yield’s Trajectory — More a Gentle Rise than a Steep Lift-Off Credit Markets Review and Outlook by John Lonski Yield’s Trajectory — More a Gentle Rise than a Steep Lift-Off. » FULL STORY PAGE 2 Topic of the Week will return next week. 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, “The median offering yield for an April 2015 sample of 48 newly issued US$-denominated high-yield bonds was a relatively low 5.75%,” begin on page 17. » FULL STORY PAGE 17 Ratings Round-Up by Njundu Sanneh More Ups than Downs. » FULL STORY PAGE 20 Market Data Credit spreads, CDS movers, issuance. » FULL STORY PAGE 22 Moody’s Capital Markets Research recent publications Links to commentaries on: Nokia, GCC, GS, EMEA, Venezuela, credit, JPM, WFC, Sysco, sov risk, GIS. » FULL STORY PAGE 26 Credit Spreads Investment Grade: Year-end 2015 spread to be under its recent 131 bp. High Yield: Recent spread of 460 bp could dip to 445 bp by year-end 2015. Defaults US HY default rate: Mar 2015, 1.9%; 2.5% average in 4Q/2015 Issuance For 2015, US$ IG bond offerings may grow by 7% to $1.203 trillion, while US$ HY bond issuance sinks by -2% to $415 billion. In 2014, US$ IG bond issuance rose by 0.9% to $1.129 trillion, while US$ HY bond issuance dropped by -2.3% to $421 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 Capital Markets Research, Inc. Weekly Market Outlook Contributors: David W. Munves, CFA 1.212.553.2844 david.munves@moodys.com John Lonski 1.212.553.7144 john.lonski@moodys.com Ben Garber 1.212.553.4732 benjamin.garber@moodys.com Njundu Sanneh 1.212.553.4036 njundu.sanneh@moodys.com Yukyung Choi 1.212.553.0906 yukyung.choi@moodys.com Iri na Baron 1.212.553.4307 irina.baron@moodys.com Franklin Kim 1.212.553.4419 franklin.kim@moodys.com Xian (Peter) Li 1.212.553.1404 Xian.li@moodys.com Moody's Analytics/Europe: Zach Witton 44 (20) 7772-1678 Zach.witton@moodys.com Moody's Analytics/Asia-Pacific: Katrina Ell 1.612.9270.8144 Katrina.ell@moodys.com Matthew Circosta 1.612.9270.8146 Matthew.Circosta @moodys.com Editor Dana Gordon 1.212.553.0398 dana.gordon@moodys.com CAPITAL MARKETS RESEARCH 2 APRIL 23, 2015 CAPITAL MARKETS RESEARCH, INC. / 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. Yield’s Trajectory — More a Gentle Rise than a Steep Lift-Off Yes, once the inevitable expiry of the Fed’s 0% interest rate policy impends, Treasury bond yields will rise and equity prices will deflate. However, as inferred from current market expectations, a fed funds rate that is no greater than 0.5% by year-end 2015 may not be great enough to usher in a bear market for equities and credit. Moreover, as inverted yield curves prove so vividly, much more than the fed funds rate determines Treasury bond yields. Ultimately, the underlying pace of business activity will set the range for Treasury bond yields. For now, modest growth prospects favor only a limited upside for Treasury yields. The rocket fuel needed for a lift-off by interest rates is lacking. Rather than soar like a Saturn rocket, the trajectory of interest rates is more likely to resemble the gentle slope of a wheelchair ramp. And that analogy dovetails nicely with the unprecedented demographic change that is unfolding. The average annual increase in the number of Americans aged 16 to 64 years is expected to plunge from the 2.0 million of 1965 through 2007 to just 570,000 during the next 10 years. Reinforcing a dramatic shift toward a grayer America, the average annual increase in the number aged 65 years and older is projected to soar from the 450,000 of 1965- 2007 to 1.74 million during the next 10 years. (Figure 1.) 0.000.250.500.751.001.251.501.752.002.252.500.000.250.500.751.001.251.501.752.002.252.501965196919731977198119851989199319972001200520092013201720212025Americans Aged at Least 65 YearsAmericans Aged 16 to 64 YearsFigure 1: Profound Shift in Age Distribution of US Population May Influence Financial Markets for Years to Come: actual &predicted annual change in millions of peopleSources: US Bureau of the Census, Centers for Medicare &Medicaid Services, Moody's An