U.S. Credit Update - January 4, 2022 - Arbor Data Science

U.S. Credit Update – January 4, 2022

•   Fixed Income and Corporate Sector Returns
•   Options-Adjusted Spreads
•   Rich/Cheap
•   Credit ETF Flows
•   Issuance Recap

                                                                   A Division of

                                                                   Anthony Rizzo and Scott Hirth
                                                                   datascience.arborresearch.com

                               © 2021 Arbor Research & Trading, LLC. All Rights Reserved
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                                                    2022-01-04

Fixed Income Sector Total Returns

  TIPS Led Last Week and Won 2021

  TIPS outperformed last week with
  investment grade credit a distant second.

  Safer assets remain in the hole for the year.
  Investment grade corporates lost -1% and
  USTs were down -2.3% for the year. TIPS
  fared much better with a total return of 6%.

  Riskier assets performed well last year. High
  Yield Corporates and Leveraged Loans
  returned 5.3% and 5.4% respectively.

© 2021 Arbor Research & Trading, LLC. All Rights Reserved 2022-01-04   2

Corporate Sector Total Returns

Spreads tighter on light volume.
Credit spreads were generally tighter last week
on holiday like volume. Lack of issuance and thin
dealer inventories were the primary factors.

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Corporate Sector OAS

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We will start the year taking a look at the TMT sector. BRITEL 9.625 12/30 have been under significant pressure due to a slide
in the company’s equity and shareholder activism. The bonds have widened +57 basis points over the past 50 trading days.
We would recommend caution with this credit as an activist shareholder took a 12% share in the company over the summer.
Should a full takeover be launched, it is unclear how key shareholders and the UK government might respond. ORCL’s
Baa2/BBB+ ratings were reviewed for a downgrade in late December. This action resulted from a previously announced $28
billion all cash acquisition. Bonds gapped 10-15 basis points wider on concerns of deteriorating cash flow that is being used to
fund shareholders returns. For those who want to play in the cap structure, ORCL 2.95 4/30 have underperformed ORCL 3.6
4/50 by 20 basis points, representing a potential play. But we would avoid an outright purchase given the uncertainty of
ORCL’s future debtholder treatment plan.

                                        © 2021 Arbor Research & Trading, LLC. All Rights Reserved 2022-01-04                       5

Aggregate and Corporate Bond ETF Flows

The last week of 2021 saw decent in-flows across
corporate bonds as well. Investment grade saw
$1.61 billion and high yield saw a slightly more
modest $1.37 billion.

The chart shows stacked rolling one-week flows
into corporate bond ETFs.

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Issuance Recap

  IG primary issuance to start the year is
  forecasted to be in the $35-40 billion area.
  Each month in Q121 saw over $200 billion
  priced.

© 2021 Arbor Research & Trading, LLC. All Rights Reserved 2022-01-04   7

Contact Us
Give us a call for more information about our services and products

Anthony Rizzo – Data Scientist
anthony.rizzo@arborresearch.com

Scott Hirth – Credit Trader
scott.hirth@arborresearch.com

Arbor Research & Trading, LLC
22333 Classic Court
Lake Barrington, IL 60010
847 756 3575
datascience.arborresearch.com

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