A Bird's Eye View BCM Blog

Fireside Charts: Changing Sentiment Deals a Blow to FANG and a Look at the Risks Facing the Bond Market

Written by BCM Investment Team | Jun 29, 2020 3:57:06 PM

As demand grows for responsible content governance from social media companies—nearly 100 major brands, including Starbucks and Coca-Cola, have paused advertising on social platforms in response to their failure to moderate dangerous and misleading content—FANG stocks suffered their worst decline since the onset of the coronavirus crisis. Will the revenue loss be enough to undermine such entrenched leadership? Over in the bond market, the average duration of U.S. corporate bonds has spiked following the wave of newly-issued debt as companies scrabbled for funding amidst the shutdown. As yields hover near record lows, investors are left with more duration risk and lower returns. And will a jump in inflation risk soon be added to the mix? Many seem to think so if the jump in flows into TIPS (Treasury Inflation-Protected Securities) are any indication. And the High-Yield spread remains elevated at almost twice pre-Covid levels, despite significant recovery in recent months. It's no surprise investors remain anxious; confirmed COVID-19 cases passed 10 million this weekend and hot spots continue to flare across the U.S. What will it mean for trade when the nation's new viral epicenter is also our biggest exporter?

1. As the list of corporations boycotting social media grows, have the mega-caps met their maker?

Source: Bloomberg News, from 6/29/20

 

 

2. Corporate bond issuance to fund Covid-related expenses has increased duration by ~50% while the yields have plummeted. Getting paid less for taking more risk is not a positive for bonds going forward...

 

Source: WSJ Daily Shot, from 6/29/20

 

 

3. 4 major central banks own ~1/5 to ~1/2 of their respective countries’ debt. Though Japan has seen no inflationary pressure so far...

Source: WSJ Daily Shot, from 6/29/20

 

 

4. ...Yet flows into TIPS may indicate the market is expecting an inflationary uptick. "Don't fight the Fed" comes to mind...

 

Source: WSJ Daily Shot, from 6/29/20

 

 

5. High yield, while much better, has not sounded the all clear yet as the spread is almost twice pre-Covid...

 

Source: The Chart Store, from 6/28/20

 

 

6. Based on the recent Covid outbreaks, will we see exports drop?

 

Source: Statista, from 6/29/20

 

 

7. Will support turn into actual reform?

 

Source: Morning Consult, as of 6/21/20

 

 

 

 

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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.