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Winthrop Capital Management-Weekly Insights-The Half-Way Point of the Year
June 30, 2020--'Did I miss anything?'-Daniel Thorson
Emerging from a 75 day silent retreat in early June, Daniel Thorson asked the question through a tweet: "Did I Miss anything?" In early March this year, Thorson had voluntarily cut himself off from society and remained isolated in a remote cabin in northwestern Vermont as part of a Buddhist spiritual retreat.
Like Rip Van Winkle, although away for a much shorter period of time, the world had changed.
The first six months of this year has been the most tumultuous period in recent history. The pandemic forced the closing of the global economy, shutting down businesses, travel, and entertainment. Almost everything that our society takes for granted was closed. The result was a massive dislocation in demand and resources. The complexity is compounded by the global connectivity of economies and capital markets.
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Source: Winthrop Capital Management
Hedge Funds, Banks Picked Up the Phone While Pandemic Raged
June 30, 2020--Hedge funds' No. 1 response to the pandemic? Pick up the phone.
Buy-side firms' most-cited reaction to market uncertainty caused by the coronavirus pandemic was to move toward more phone-based trading, with 31% listing it as their response during the early days of the outbreak, according to a study from Greenwich Associates released Tuesday.
Major banks and broker-dealers also relied more on telephones, with 19% saying they increased such trading and 17% saying they shut off auto-pricing technology as the pandemic roiled markets.
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Source: bloomberg.com
Fed Opens Lending Program for New Issuance of Corporate Debt
June 29, 2020-Effort is part of emergency programs the Fed is running to backstop lending markets reeling from coronavirus
The Federal Reserve formally opened Monday its $500 billion lending program to support issuance of new debt by large corporations, the last of nine emergency programs it is running to backstop lending markets reeling from the coronavirus pandemic.
The Fed began purchasing earlier this month individual bonds of large companies that were highly rated as of March 22, but it hadn't yet said when it would initiate a companion effort to purchase newly issued securities by those companies.
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Source: wsj.com
Fed Becomes No. 3 Holder of World's Biggest Corporate-Bond ETF
June 29, 2020--It has purchased over 13 million shares of LQD through June 16
Central bank is likely to slow the pace of ETF buying: Tchir
The Federal Reserve became one of the top holders in some of the world's largest credit ETFs less than two months after stepping into the market.
The central bank owns more than 13 million shares of the $54 billion iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund (LQD) as of June 16, making it the third-largest holder, according to data compiled by Bloomberg.
Only Bank of America Corp. and Fisher Asset Management--both of whom have yet to file their second-quarter holdings--own more shares than the U.S. central bank.
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Source: bloomberg.com
Wall Street banks net record fees for pandemic fundraisings
June 29, 2020--Investment banking fees soared to a record $57bn in the first six months of the year, boosted by a series of lucrative debt sales as companies grabbed cash to tide them through the coronavirus crisis.
Emergency financings by carmaker Ford, cruise line operator Carnival and aerospace and defence group Boeing were among the fundraisings that provided multimillion-dollar paydays for Wall Street banks that found investors willing to stump up the money.
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Source: FT.com
SEC Updates Filing Threshold to Rule 17h Reporting Requirements for Broker-Dealers
June 29, 20202--The Securities and Exchange Commission today issued an order to update the filing threshold for broker-dealers' Form 17-H filings made pursuant to Exchange Act Rules 17h-1T and Rule 17h-2T.
The threshold, which had not been updated in nearly 30 years, will exempt certain smaller broker-dealers from the reporting requirements of the rules while continuing to provide important information to the Commission on the financial condition of covered broker-dealers and their affiliates.
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Source: SEC.gov
The Fed reveals which companies make its corporate-bonds shopping list
June 29, 2020-The Federal Reserve on Sunday released a list of roughly 750 companies, including Apple, Walmart and ExxonMobil, whose corporate bonds it will purchase in the coming months in an effort to keep borrowing costs low and smooth the flow of credit.
The central bank also said it has, so far, purchased nearly $429 million in corporate bonds from 86 of those companies, including AT&T, Walgreen's, Microsoft, Pfizer and Marathon Petroleum.
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Source: fortune.com
The Shift from Active to Passive Investing: Potential Risks to Financial Stability?
June 29, 2020--Abstract:
The past couple of decades have seen a significant shift from active to passive investment strategies. We examine how this shift affects financial stability through its impacts on: (i) funds' liquidity and redemption risks, (ii) asset-market volatility, (iii) asset-management industry concentration, and (iv) comovement of asset returns and liquidity.
Overall, the shift appears to be increasing some risks and reducing others. Some passive strategies amplify market volatility, and the shift has increased industry concentration, but it has diminished some liquidity and redemption risks. Finally, evidence is mixed on the links between indexing and comovement of asset returns and liquidity.
view the paper-The Shift from Active to Passive Investing: Potential Risks to Financial Stability?
Source: federalreserve.gov
National Bureau of Economic Research-Working paper-Corporate Bond Liquidity During the COVID-19 Crisis
June 28, 2020--We study liquidity conditions in the corporate bond market since the onset of the COVID-19 pandemic. We find that in mid-March 2020, as selling pressure surged, dealers were wary of accumulating inventory on their balance sheets, perhaps out of concern for violating regulatory requirements. As a result, the cost to investors of trading immediately with a dealer surged.
A portion of transactions migrated to a slower, less costly process wherein dealers arranged for trades directly between customers without using their own balance sheet space. Interventions by the Federal Reserve appear to have relaxed balance sheet constraints: soon after they were announced, dealers began absorbing inventory, bid-ask spreads declined, and market liquidity started to improve. Interestingly, liquidity conditions improved for bonds that were eligible for the Fed's lending/purchase programs and for bonds that were ineligible. Hence, by allowing dealers to unload certain assets from their balance sheet, the Fed’s interventions may have helped dealers to better intermediate a wide variety of assets, including those not directly targeted.
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Source: nber.org
A new trend is shaking up the ETF industry: active management
June 28, 2020-Traditional fund groups are fighting back by launching ETFs that buy assets without following an index
Entering client meetings and conference halls like conquering noblemen, the champions of the exchange-traded fund industry denounced stock pickers, brokers and fund gurus for their greed.
Clutching books by Jack Bogle and William Sharpe, they warned that every dollar paid in fees was a dollar less for widowers and grandmothers.
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Source: FT.com
