Wednesday, February 21, 2018

"US companies might be liquidating their offshore bond hoards"

Alexandra seems to be one of the few journos bulldogging what for market operators is a pretty important story. As noted in the intro to Feb. 4's "Bonds: 'Apple, Alphabet and Microsoft... — might consider borrowing some bond-market manoeuvres from the Federal Reserve.'":
If the companies simply repatriate the dollar amount they will only have to sell enough  assets to pay the tax. If they plan to distribute/invest the cash they will have to sell into already weakening markets.
I haven't seen this point raised anywhere in the media other than...

From FT Alphaville, Feb. 1:...
And from FT Alphaville, Feb. 20:

Something odd has been happening to short-term bank bonds.
So far this month, spreads on banks' two-year bonds have widened by more than 15 basis points, according to Bank of America Merrill Lynch. For all US corporate debt maturing in 1-3 years (which includes bank bonds), spreads have widened 8bps, according to BofAML ICE's index. Spreads on three-year and four-year securities have widened by about 11bps and 12bps, respectively:
This is more likely a sign of selling from big multinational companies, rather than a change in traders' beliefs about bank creditworthiness. Many multinationals had said they would liquidate savings they had invested offshore after tax reform. Companies that invested primarily in corporate bonds, such as Apple, were large buyers of short-term bank bonds, Zoltan Pozsar wrote in a note last month.
Bank of America strategists wrote in a note today that they expect the short-term funding pressures to continue:
The other aspect of overseas cash repatriation we have pushed for this year is that financial markets are losing one of the biggest providers of funding in the front-end... We think liquidations the past two weeks of 1-3 year paper in the corporate bond market is to some extent driven by this story. We are also seeing stress in the commercial paper market, 2-year swap spreads and LIBOR-OIS and one of the drivers we think is the overseas cash repatriation story... We continue to expect wider credit spreads in the front end of the curve.
Maybe companies are going by the two-year timeline estimated by Pozsar:...MORE