Bloomberg
“Investors Are Doing a Deep Dive Into the Riskiest Subprime Debt.”
Investors hunting for better returns are doubling down on risk in far flung corners of the U.S. bond market. Nowhere is this more striking than in the markets for asset-backed securities and collateralized loan obligations. Below-investment-grade ABS are on track this year to account for its biggest slice of the overall sector since before the financial crisis. At the same time, the riskiest CLO notes are now a larger percentage of the market than they’ve been in two years.
The growing appetite for the lowest-rated bonds in the ABS and CLOs markets highlight the rabid demand for higher-yielding securities and those with floating rates that offer protection from inflation and tighter monetary policy. But this also leaves these markets more exposed at a time when many analysts see an economic slowdown on the horizon.
The supply of below-investment-grade asset-backed securities in consumer categories has been rising for the last two years with the majority in personal loans, equipment and auto, according to Wells Fargo.
Subprime auto ABS is the largest category. Companies have sold more than $150 million of B rated bonds in the sector this year, compared with nothing last year and an annual average of about $20 million since the financial crisis, Barclays analyst Alin Florea wrote in a recent note. It’s still a small part of the overall market.
The popularity of subprime auto ABS — especially the rise of B rated tranches — is a concern because there are fewer protections baked into the structures of the deals than before the financial crisis, S&P Global Ratings analysts said in a note Monday.
Bonds rated BB typically were insured in the 1990s, featuring important triggers to protect investors. But insurance hasn’t been used as a form of credit enhancement in this market since 2008, so the latest batch of subprime deals — many of which now go all the way down to B ratings — doesn’t have the same safety net, according to S&P.
Reuters
“Trump, Putin to meet on July 16 in Helsinki: officials.”
U.S. President Donald Trump and Russian President Vladimir Putin will meet on July 16 in Helsinki, the Kremlin and the White House said on Thursday, a first official summit that will be closely watched by nervous U.S. allies in Europe and critics of Russia in America.
The two countries announced the details simultaneously a day after striking a deal on holding the meeting following a visit to Moscow on Wednesday by U.S. national security adviser John Bolton.”The two leaders will discuss relations between the United States and Russia and a range of national security issues,” the White House said in a statement.
Trump and Putin have met twice before on the sidelines of international gatherings. Their summit could irritate U.S. allies who want to isolate Putin, such as Britain, or who are concerned about what they see as Trump’s overly friendly attitude toward the Russian leader. It is also likely to go down badly among critics who question Trump’s commitment to the NATO alliance and who have been concerned about his frictions with longtime allies such as Canada and Germany over trade.
BBC News
“Merkel urges EU deal on migration.”
German Chancellor Angela Merkel has urged European leaders to work together on finding solutions to irregular migration. She told Germany’s parliament the issue could be a defining moment for the EU.
The call comes ahead of an EU summit focused on how to deal with the many undocumented migrants – mainly Africans – who continue to risk their lives to cross the Mediterranean. Mrs Merkel is under pressure to come up with a deal to prevent new arrivals.
Interior Minister Horst Seehofer, from her Bavarian coalition partner the CSU, has given her until this weekend. Otherwise he has said he will start turning away migrants from the border in his home state. The migrant flows also include refugees fleeing the Syrian war and other conflicts, urgently seeking asylum.
It is not a crisis on the scale of 2015, when thousands were coming ashore daily on the Greek islands. The European Council – the EU’s strategic leadership – says the numbers illegally entering the EU have dropped 96% since their peak in October 2015.» But this month’s tensions over migrant rescue ships barred from entry to Italian ports – most recently the German charity ship Lifeline – have put the issue firmly back in the EU spotlight.
The Lifeline was only allowed to dock in Malta after intense diplomacy among several EU states, who each agreed to take a share of the migrants on board. Malta said that Norway had now also agreed to take some migrants from the Lifeline.
The Dublin principle – that asylum seekers should stay in the country where they enter the EU – has broken down. Italy and Greece, who receive the most, are demanding that their neighbours share the burden.
Bloomberg
“Amazon Makes Big Foray Into Health Care With PillPack Purchase.”
Amazon agreed to buy the online pharmacy startup PillPack, jumping into the health-care business with a deal that will give the retail giant an immediate nationwide drug network.
The move represents a formidable threat to pharmacy chains including Walgreens Boots Alliance Inc., which earlier Thursday reported tepid U.S. same-store sales, and rival CVS Health Corp. Walgreens was down 10 percent at 10:18 a.m. in New York, while CVS shares shed 8.9 percent.
Terms of the deal weren’t disclosed. The transaction is expected to close in the second half of 2018, according to a statement from the companies.
The U.S. market for prescription medicine is huge. In 2016, U.S. consumers spent $328.6 billion on retail prescription drugs, according to the U.S. government. CVS reported prescription sales of $59.5 billion last year, and Walgreens sold $57.8 billion worth of drugs in its fiscal 2017.
PillPack has mail-order pharmacy licenses in all 50 U.S. states, which could allow Amazon to expand quickly. PillPack also has relationships with most major drug-benefit managers, including Express Scripts and CVS, and says it works with most Medicare Part D drug plans. Those ties will give Amazon access to much of the prescription drug market in the U.S.
PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. The closely held firm has software that automates many routine pharmacy tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now..