Sunday, May 20, 2018

Follow-up: "US companies begin to reduce bond holdings after tax overhaul"

Sharp-eyed reader will see why we headlined with "Follow-up". More after the jump.
From the Financial Times, May 13:
Allergan and Celgene cut their securities investments as executives prepare to invest

US companies’ pile of bond investments is shrinking as they prepare to radically change the way they spend their excess cash.

The biggest 30 corporate stockpiles of securities shrank 10 per cent, or $61bn, in the first quarter to $524bn, according to an FT analysis of public filings.

At the same time the aggregate growth in companies’ holdings of cash and equivalents rose 17 per cent, or $34bn, to $239bn, as senior executives assess new ways to deploy their capital.

Until this year, US companies faced a 35 per cent corporate tax rate at home, but did not need to pay tax on foreign profits until those earnings were repatriated. That prompted companies such as Microsoft, Apple and Cisco in the past decade to invest hundreds of billions of dollars of spare cash offshore, mainly in bonds and other securities, to earn a return....MORE
The author of the above piece is Alexandra Scaggs, in this case writing for the paper rather than FT Alphaville where she looks at fixed-income and other stuff.
In February 2018 she had a couple posts we linked to that foreshadowed what markets have been seeing:
Feb. 1
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:

B.R.E.A.M. (Bonds Rule Everything Around Me)
Bigtech and pharma companies — Apple, Alphabet and Microsoft among them — might consider borrowing some bond-market manoeuvres from the Federal Reserve....
That was followed by "US companies might be liquidating their offshore bond hoards" a few weeks later.

Alexandra seems to be one of the few journos bulldogging what for market operators is a pretty important story....
...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:.....
And the "other stuff"? Well, there was:
A weekend in Texas with ZeroHedge readers, Part 1
Cigarettes are the vice America needs  
And...many, many more.

Come for the convexity, stay for the duration.