00:00Let's just talk about how busy you've been over the last month, how that stacks up with the rest of the year, and the ramp you're expecting to see in 2026 and beyond.
00:07Yeah, well, so we've had an exceptionally busy run.
00:10We are probably looking at a record November for high-grade issuance volumes by a pretty big margin.
00:16A few things driving that.
00:17Number one, you know, market conditions are still pretty favorable here.
00:20Spreads are relatively tight from a historical perspective.
00:22We have backed up recently just with some of the heavy supply overhang, but we're still very close to cycle tights in terms of spreads.
00:30Treasury yields have come, you know, 60 basis points lower from the peaks we saw in the early part of the year.
00:34So from just an issuance window perspective, it feels like an advantageous time to get in front of some of your 2026 funding needs, and that's what we're seeing.
00:42But on top of that, you obviously have this undercurrent of CapEx spending that needs to get financed, and that is going to be a tailwind heading into next year.
00:49So while we are looking at probably $150 billion of volume for November and maybe somewhere around $1.65, $1.7 trillion in terms of total full-year supply,
00:58next year could be somewhere closer to $1.8, $1.85 trillion.
01:02That would be likely a record year for our market rivaling that 2020 kind of COVID liquidity rush we saw.
01:08So we had $50 billion from just two names, almost $50 billion in the last week.
01:12Is a smaller number of companies responsible for a larger amount of that issuance?
01:16Yeah, so obviously tech supply is quite topical.
01:19The number is actually slightly larger than $50 when you consider the non-dollar component.
01:23Alphabet did do a euro in addition to dollars, and then you also have project finance bonds that have come through our market.
01:29So the number is actually a lot larger than that when you kind of take it all in totality.
01:33But when you look at sort of tracked tech issuance, we'll be somewhere around $200 billion this year.
01:38Next year, that number could increase by something close to 75, maybe even 100%.
01:42So for sure, capital expenditures is going to be a tailwind for issuance as we head into the next kind of two to three years.
01:49So far, concentration has been a feature, not a bug, of the equity market returns.
01:53Do you get investors that are getting increasingly concerned about concentration risk in the investment-grade debt market as a heavier component becomes these tech companies?
02:02Yeah, so I think first and foremost, when we look at these companies fundamentally, these are mega-cap, highly-rated, cash-rich names with typically low net debt.
02:13Their debt footprints up until this point have actually been somewhat modest relative to their market cap.
02:17But obviously, as they become bigger components, their debt footprint grows and bigger components of the index, you're going to start to see the market price that risk.
02:25But they're still a far cry away from being as large as, let's say, the U.S. big six banks, you know, J.P. Morgan, B of A, Wells Fargo.
02:33These are the largest index weights right now.
02:35So there's a long way to go before we reach sort of a saturation point.
02:38And banks fund regularly in our market, albeit at slightly wider spreads than where the index trades.
02:43So I think ultimately our market is prepared to take down a lot of concentration risk, but it probably gets priced into spreads over time.
02:49So said another way, these names will likely trade a little bit wide relative to their ratings as their CapEx needs expand over the next two years.
02:56Putting this another way, is this a window where things are priced to perfection so you might as well get in while the getting is good?
03:01I think you are seeing a little bit of that.
03:02I think that's what's explaining a lot of this November rush right now.
03:06The getting is good right now from an industry perspective.
03:09Spreads are still very tight.
03:10But also from a macro perspective, the world feels pretty good right now.
03:13There's a lot of uncertainties as we head into next year.
03:15So I think you are seeing a lot of folks get in front of what they anticipate their funding needs will be in 2026 and de-risking those plans now.
03:22The world is changing rapidly, something I've been confused about for a long time.
03:25Help me understand.
03:26Why does anyone want to buy 50-year debt of a tech company?
03:30Can you explain that to us?
03:31Yeah, I mean, I think it also goes back to the strong fundamentals I was just alluding to.
03:35A lot of these companies are very highly rated, right?
03:37Double-A rated risk.
03:39So even if we do take on a large amount of leverage, most of them are not in danger of threatening those double-A ratings.
03:47So I think from a fundamental perspective, these are still considered pretty safe investments.
03:52But more than that, there's a technical component to long-duration supply in our market.
03:56A big component of who buys corporate credit is going to be liability-driven investors.
04:01These are pension funds.
04:02These are insurance companies.
04:03These are investors that are matching their assets against their liability streams.
04:06Naturally, these folks lean longer on the curve, and our market had been undersupplied in long duration to a huge degree up until basically the last week or so, where the market's gotten a lot of long duration.
04:17So there was a pent-up demand for long-end paper heading into this wave of issuance that has supported a pretty tight spread environment.
04:25You know, over time, could we see spread curves steepen?
04:28I think the answer to that question is probably yes, as these companies increasingly rely on very long-dated debt capital.
04:34But for now, there is such a strong technical base in our market supporting that bid for long duration that I think a lot of these companies will be highly successful funding these capital expenditures.
04:44Can you give us a sense of how many coupon clippers there are versus fast traders versus fast money?
04:50I mean, just to get a sense of how much pricing risk is in some of these markets.
04:55Yeah, I can imagine an insurance company just wants to match the liabilities.
04:57They're going to clip the coupon.
04:58They're going to like that income for 50 years if we still are using search and if we still are using iPhones.
05:03We don't just have a simple answer.
05:04Someone's got their doubts.
05:05Well, I mean, it's just that when technology is changing this quickly, it's very hard to say that this is going to be a triple-A-rated company or a double-A-rated company in, you know.
05:12I'm right there with you.
05:13I can't even read it in 2075, but I am curious, how much is this fast money coming into this market and how much really is that institutional coupon-clipping buyer?
05:23Yeah, so when you look at the composition of who buys investment-grade debt, roughly 30% of our market is pension funds and insurance companies.
05:31And that's just in the U.S.
05:32Then you also have a foreign component that buys U.S. dollar-based fixed-income assets.
05:36And in that number is also a lot of liability-driven investors.
05:40So the number is probably closer to half of our market, our more yield-focused investors.
05:46Then you have a component of more of this kind of total rate of return money, ETFs and mutual funds, makes up about another 30-ish percent of our market.
05:53And then, of course, you have the more actively traded funds, which are a growing component of the overall landscape in fixed income.
06:00On a primary basis, hedge funds account for about 10% to 15% of allocations and new issues.
06:05Are we still doing this show in 2075?
06:07I hope we're still around.
06:08You think that for 50 years, I'll come out and be like-
06:10I'm still sitting here, Brammo.
06:11Is that matures?
06:12Good morning.
06:13Is that matures?
06:15I'll still be here.
06:16Maureen, I just want to finish on this, on a supply issue.
06:19How much competition is this for the issuance on the Treasury side?
06:22How much does one compete with the other?
06:23Because what was interesting for us following the Alphabet issuance, when that came out,
06:27it felt like Treasuries were getting kicked around at the same time.
06:30Does one compete with the other?
06:32You'll find that the markets are pretty bifurcated.
06:35Usually, from an asset allocation perspective, there's not a lot of fluidity between those
06:39two markets, necessarily.
06:41People will have a fixed income allocation, and it will be spread across a multitude of
06:45different products.
06:46Obviously, Treasuries, corporates, but also MBS, ABS, et cetera.
06:49So, the pressure that we saw in Treasury yields at the beginning of the week was a result of
06:55some of the response to the Fed meeting last week, and then the refunding announcements.
07:00So, I think it's really more macro factors driving Treasury volatility than it is about
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