WEEKLY MARKET OUTLOOK MAY 7, 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. Corporate Credit Withstands Higher Treasury Yields for Now Credit Markets Review and Outlook by John Lonski Corporate Credit Withstands Higher Treasury Yields for Now. » 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 4 The Long View Check our chart here for forecast summaries of key credit market metrics. Full updated stories, “In response to the 10-year Treasury yield’s earlier jump from the 1.76% of the year-ended April 2013 to the 2.71% of the year-ended June 2014, the annual percent change of yearlong US$-denominated investment-grade bond issuance slumped from April 2013’s 28% advance to June 2014’s -2% dip, as high-yield offerings sank from a 63% surge to a -7% drop,” begin on page 14. » FULL STORY PAGE 14 Ratings Round-Up by Njundu Sanneh Notably More Rating Activity. » FULL STORY PAGE 17 Market Data Credit spreads, CDS movers, issuance. » FULL STORY PAGE 19 Moody’s Capital Markets Research recent publications Links to commentaries on: Ocwen, Pfizer, production, Greece, TXN, HNT, fundamentals, Avon, BBT, MS, Greece, Citi, yield, Nokia, GCC, GS, EMEA, Venezuela. » FULL STORY PAGE 23 Credit Spreads Investment Grade: Year-end 2015 spread to be under its recent 132 bp. High Yield: Recent spread of 450 bp could dip to 445 bp by year-end 2015. Defaults US HY default rate: Mar 2015, 1.9%; 2.5% average in 4Q/2015 Issuance For 2015, US$ IG bond offerings may grow by 5% to $1.19 trillion, while US$ HY bond issuance edges up by 1% to $424 billion. In 2014, US$ 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 Irina 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: Alaistair Chan 1.612.9270.8148 Alaistair.Chan@moodys.com Faraz Syed 1.612.9270.8146 Faraz.syed@moodys.com Editor Dana Gordon 1.212.553.0398 dana.gordon@moodys.com CAPITAL MARKETS RESEARCH 2 MAY 7, 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. Corporate Credit Withstands Higher Treasury Yields for Now The second-quarter- to-date’s 27 bp climb by the 10-year Treasury yield to 2.20% has yet to materially worsen prospects for corporate credit quality. Much to the contrary, high yield corporate bonds have largely shrugged off the ascent by Treasury bond yields. Not only has the composite high yield bond spread narrowed from March 31, 2015’s 488 bp to a recent 450 bp, but the composite speculative grade bond yield also fell from 6.31% to 6.15%. High yield credits seem to have benefited from the same jump by industrial commodity prices that has pushed Treasury yields higher by boosting inflation expectations. Largely unnoticed, industrial metals prices have staged quite a rally. Over the last 20 trading days, Moody’s industrial metals price index surged higher by 7.6%, which was the biggest such gain since late August 2011. However, the recent base metals price index was still down by -5.1% yearly, while trailing its record high of April 2011 by -30.3%. After also considering the accompanying jump by oil prices, it’s understandable that recent advances by industrial commodity prices may have boosted inflation expectations by enough to lift Treasury bond yields. Moreover, the recent steepening of the Treasury yield curve strengthens the case in favor of an upward revision of inflation views. Home sales will offer insight regarding the upside for T-Bond yields The widening of the spread between the 30- and 10-year Treasury yields from a Q1-2015 average of 59 bp to a recent 75 bp partly stemmed from expectations of faster price inflation and the sense that the latest c