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Panoramic: The effect of globalisation on corporate bond valuations

Posted on 16 April 2013 by Gordon Harding

Corporate bonds have had an incredible run over the past few years. A combination of sub-par growth, the sovereign crisis in Europe and massive amounts of QE on a global scale has driven government bond yields down to historically low levels. At the same time, corporate bond spreads have tightened significantly from the crazy levels we saw in 2009. This has meant double-digit annualised returns from parts of the investment grade market (as you can see from the chart Richard posted yesterday), albeit with some spread volatility in ‘risk-off’ periods.

How do corporate bonds generate similar returns from here? Well, there’s no doubt it’s going to be difficult. Given the duration of the iBoxx £ Corporate index of just under 8 years, we’d need to see yields fall roughly 1% further. So, either 10 year gilt yields would have to rally to less than 1% (from today’s 1.7% level) with spreads staying broadly flat, or spreads would need to tighten significantly with gilt yields stable (or of course any other combination of gilt yield/credit spread moves equivalent to about a 1% fall in overall yield).

Focussing purely on the credit spread and using history as a guide, there certainly is room for further tightening – for example, the spread of the BofA Merrill Lynch BBB Sterling Corporate & Collateralised index was 292bps at the end of March, 191bps wider than the pre-crisis tight of 101bps at the end of May 2007. But what could be the catalyst for such a tightening of spreads?

In the latest version of our Panoramic series we look at what drives the relationship between corporate and government bond pricing, how this has been changing over time and what might ultimately lead to corporates trading at even tighter levels than before the financial crisis.

Caveat emptor – new deals in the high yield market

Posted on 4 April 2013 by James Tomlins

The volume of new bond deals in the European high yield market has been very strong this year. One (unscientific) measure of this has been the growing pile of bond prospectuses on the desk; already the 2013 pile is more than halfway up the 2012 pile after just three months.

A marginally more robust measure is the data below published by Morgan Stanley. The year to date number of €25.2 bn is running well ahead of last year as more and more companies take advantage of lower yields and looser financing conditions in the wider credit markets to term out their debt and reduce interest costs.

Whilst this is generally good for the long term development of the high yield market in terms of depth and diversification, at this point in the cycle there are a few factors that are beginning to cause us to pause for thought.

In brief they are:

Capital structure – in recent months we have seen the re-appearance of more equity like instruments being issued. This can take the form of deeply subordinated debt, or bonds that pay interest in the form of more bonds rather than cash (aka payment in kind notes). These instruments are typically used to fund dividends to the owners of businesses and can expose bond investors to equity like downside.
Covenants – less of an issue for the bond market, but several leveraged loans in recent months have been issued on so called “cov-lite” terms (i.e. with significantly looser legal restrictions)
Quality of issuer – looser conditions in the credit markets make it easier for riskier issuers to refinance their debt. In early 2012, the market was largely closed to cyclical or more challenged southern European issuers. This is no longer the case.
Pricing – all the factors above are acceptable as long as buyers of the bonds are being compensated for the inherent risks. However, given that these deals are being priced in a market with an average yield of 5.6%*, the general prospects for attractive returns are more limited.

We believe that on a case by case basis there are still some attractive opportunities. Nevertheless this is very much a seller’s market. The terms are arguably more attractive for the issuers of bonds rather than the buyers. Accordingly, when looking at new deals, now is the time for a healthy dose of cautious discrimination – caveat emptor.

*B of A Merrill Lynch Euro High Yield Index yield to maturity 02/04/13

HY default rates showing the divergence in the Eurozone

Posted on 15 March 2013 by Matthew Russell

2012 was not a good year for peripheral European defaults in the high yield market. Spain’s default rate doubled from 7% to 14%, while Italy’s went from 5.7% to 9.5%. Clearly, that the Spanish and Italian economies are under stress is not news, but what I thought was interesting though was that German defaults have continued to fall. It is important to point out that this is not just the public high yield market, it also includes private bank loans and it has been those that account for the majority of the defaults.

As the chart below shows, in 2010 Germany had the highest level of defaults of the three countries but over the subsequent years the situation there has improved. The opposite has been the case in the periphery with last year’s jump in defaults looking particularly worrisome.

We have been speaking for a while about the strain that operating under inappropriate policies puts on an economy, and this looks like empirical evidence of just that. Italy and Spain need looser monetary policy and less constrictive fiscal policies. In a pre-euro world these countries would have had full control of these policy tools, been able to devalue their currencies, relieve some of the strain and increase the competitiveness of their economies. This is not an option open to them now (short of leaving the euro) and I can see no way the situation will improve anytime soon. Even with Mario Draghi and the ECB willing to do whatever it takes to save the euro, the only outcome I can see for the next few years is the strong getting stronger and the weak getting weaker.

European autos, stuck in reverse

Posted on 13 February 2013 by Stefan Isaacs

French auto manufacturers Peugeot and Renault report full year 2012 earnings this week. If Peugeot SA’s write down announced on Friday is anything to go by – when it took a €4.7bn non-cash charge – the outlook for the company and indeed other European focussed auto manufacturers continues to be a bleak one. European market conditions have been described by S&P as ‘dire’. Overcapacity and general economic uncertainty have resulted in utilisation rates below break-even profitability for a number of plants. Cash continues to be burnt and unsurprisingly, share prices don’t make for pleasant reading.

The need for an overhaul of the likes of Peugeot, Fiat and Renault remains acute. European light vehicle registrations are headed for a fifth consecutive year of declines (see chart below), Italian and Spanish registrations are at nearly half their pre-crisis levels, profit margins on compact vehicles are slim and Peugeot, Fiat and Renault are losing market share to investment grade rated manufacturers like BMW, VW and Daimler.

Struggling under a mountain of debt, Peugeot, Fiat and Renault find themselves in a non-too dissimilar position to that of the US auto manufacturers back in 2008/2009. Several years ago GM, Ford and Chrysler were able to successfully restructure, both inside and outside of bankruptcy, allowing them to close capacity, reduce over-indebtedness, renegotiate onerous union contracts and subsequently return to profitability even at levels of production significantly below those pre-crisis. That experience remains in stark contrast to European OEMs (Original Equipment Manufacturers) who continue to labour under many of those same pressures whilst facing ongoing weak domestic demand.

Management continues to struggle to right-size their businesses some 5+ years into the financial crisis in the face of strong political pressure and a determination to avoid job losses. Ironically, the very interference that has hampered change in Europe has now led to Peugeot having to rely on French state support. But these choices cannot be put off into perpetuity and unwelcome decisions are inevitable. Until that point in time, losses will continue to mount, cash will be burnt and creditors will likely favour US over European OEM risk.

Contingent capital notes – bank equity’s best friend?

Posted on 15 January 2013 by Stefan Isaacs

As investors, the majority of our time is spent pricing risk with an increasing amount of that spent trying to value optionality. We’ve always had to price the optionality inherent in owning certain bonds. For instance what’s the likelihood of a call option sold to a bond issuer being exercised? What’s the likelihood of an early refinancing, or perhaps a change of control? These and other options are both risks and opportunities that credit investors will regularly have to consider and reconsider.

Some of the more recent options that credit investors have been forced to consider are those embedded within contingent capital notes or CoCos. These aren’t entirely new securities with Lloyds having exchanged bonds for CoCos back in 2009. Simplistically these ‘first generation’ CoCos are designed to behave like a traditional bond until a pre-defined trigger is breached. When triggered, first generation CoCo holders are forcibly converted into equity at pre-determined pricing, aiding the bank with its recapitalisation efforts. These instruments have found favour with the regulator not least because traditional subordinate capital instruments proved themselves almost entirely ineffective in providing loss absorbing capital.

However, since the issuance in 2009 the market has moved on somewhat and a new breed of CoCo has since emerged. Many of these newer instruments (see chart above) are designed to be written off entirely in the event of a trigger without the conversion into equity discussed above. This optionality has two obvious implications. Firstly, given that investors are written down to zero without equity conversion, any prospect of participating in a future recovery becomes null and void. Secondly (with the caveat that the quantum of issuance remains small for now), the prospect of a bond essentially performing the role of a non dilutive emergency rights issue has to be positive for all other stakeholders in the bank, not least common shareholders. And don’t forget that the majority of these instruments will see their coupons paid before tax, further enhancing the relative value of said issuance.

Selling all this optionality does have its price, as do most things in life, but the current exuberance in credit markets may yet see CoCo investors fail to exact an adequate premium.

Judgement Day – RPI Damp Squib

Posted on 10 January 2013 by Ben Lord

Today has seen the release of the decision by the National Statistician about what to do with the Retail Prices Index. We were told of the consultation in September last year, and were presented with 4 options, ranging from 1) to do nothing, to 4) to make RPI as much like CPI as possible.

Our view was always that the consultation arose as a result of the desire to correct an error made in the clothing component of RPI in January 2010 see blog. This change had seen the ‘wedge’ between RPI and CPI anomalously and erroneously increase by close to 1% following its implementation. We therefore believed that it was perfectly appropriate for the National Statistician to correct this error, and so we were expecting to see Option 2 materialise, which most closely targeted correcting this source of the wedge.

UK linkers had noticeably underperformed other markets since the announcement of the consultation. The market had initially started to price in a 30 to 50 basis point reduction in the wedge of RPI over CPI in expectation of Option 2′s intention to rectify the error. However, as Judgement Day approached nervousness increased in the linker market as people started to worry that the more severe options could be implemented.

Were Option 4 to have been recommended today, the wedge of RPI over CPI would have been reduced by approximately 100 basis points. This would have been a severe and brutal change for the index linked bond market. All else remaining equal, this change would have seen breakevens on index-linked bonds fall by approximately 70 basis points (allowing for 30 basis points of underperformance already priced in). To put it another way, this would have see the price of the longest index-linked gilt, the UKTi 0.375% 2062s, fall from 107.7 to about 85, a fall of 21%. Today, things really could have got nasty!

But the decision today has been Option 1. No change. Whilst highlighting that “the RPI does not meet international standards” and recommending that a new index be published, Jil Matheson “also noted that there is significant value to users in maintaining the continuity of the existing RPI’s long time series without major change, so that it may continue to be used for long-term indexation and for index-linked gilts and bonds in accordance with user expectations”. For the release, go to this link.

All the lobbying that we – and some others – have been doing behind the scenes has been worth it. In the Financial Times today, Chris Giles (who was on the Consumer Prices Advisory Committee) stated that the ONS rejected the committee’s advice in the face of ‘overwhelming opposition to changes in the calculation of the RPI’. The market has recently opened, and is removing the expected reduction of 30 basis points or so from Option 2. Breakeven inflation rates at the moment are up by 37 basis points at the 10 year part of the curve and by 22 basis points at the long end. The 2062 index-linked gilt is up by 12 points in price terms, and the whole linker market is rallying in the relief that no change is being made…

…for now! We will soon see the creation of a new RPI index, called RPIJ. This effectively makes RPI equal to CPI through making the older RPI index more modern by removing arithmetic mean and replacing it with geometric mean. This will be run in parallel with the old, untouched index. But it suggests that this debate is not over forever. We could again see recommendations to move from RPI to RPIJ, but more likely, we will soon start to debate moving the index-linked corporate bond market from RPI linkage to CPI linkage. The creation of RPIJ does seem a little irrelevant, where a new index has been created that few people will care about given that inflation linked bonds will continue to be linked to RPI and the government is clearly dedicated to linking other forms of government compensation to CPI.

Ultimately, though, even if we had seen a brutal reduction in RPI today, I still think that the strong case could be made to want to own UK index-linked bonds over the medium and long term. And changing the calculation to option 4 could have saved the Treasury a whopping £3bn per year, so while the decision to make no change has been great for inflation linked bond holders, it’s not so great for the UK’s coffers. Finally, the strong opposition to the RPI changes gives you a good idea of how hard it will be to implement austerity measures, and if we aren’t going to get out of this debt crisis through austerity, then the likelihood of us getting out of it with the help of inflation has just increased a bit!

Five guidelines for European high yield peripheral investing

Posted on 2 January 2013 by James Tomlins

“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognise the opportunity.”

John F Kennedy

2012 was a very good year for the European high yield market, total return coming in at 27.2% . Whilst we do not expect to see the same magnitude of performance in 2013, there are still some interesting pockets of value in the market. One of these is the “peripheral” region of Europe. In line with JFK’s sentiment above, we think it’s very important to engage pragmatically with Spanish, Italian, Greek, Irish and Portuguese companies. There is little doubt that the “periphery” is a major source of risk in these uncertain and austerity-bound times, but is also a good source of opportunity. So how can investors navigate these dangerous waters? When it comes to trying to pick out the better opportunities within the periphery, we think the following guidelines can be useful:

Right company, wrong postcode – It’s often easy in the first instance to dismiss a company due to the location of its business. This is why it’s so important to look at the underlying fundamentals of a business, no matter where it happens to be based. The market can often apply an unfairly harsh peripheral risk premium to some very high quality businesses.
Example – Guala Closures SpA is a specialty packaging business based mainly in Italy. We view Guala as a high quality business that has a strong competitive position in a fast growing, niche area of the packaging world, namely tamper-proof spirit bottle closures that help drink manufacturers defend their product against counterfeiters.
International earnings – Looking at where a company’s underlying cash flow and earnings actually originate is important. This is something that helps to mitigate the downside of weak domestic earnings. Also, if international operations become the dominant source of earnings and cash flow over time, the market will start to reduce the peripheral risk premium to the benefit of bond holders.
Example – Fage Dairy Industry SA is a Greek yoghurt manufacturer with significant domestic operations. However, over the past few years, the business has made major investments in the fast growing US market with a plant based in upstate New York. The US business now accounts for the majority of the group’s cash flow.
Recession resilient balance sheet – If a company does have significant exposure to an austerity hit economy, it’s important to discriminate in favour of those who can survive a weak economic environment. Going into a recession with a relatively healthy balance sheet means a business has the ability to endure a few setbacks and thus greatly increases the chances of survival in the medium term. If and when a weak domestic economy stabilises and returns to growth, then these businesses will also be the first to benefit.
Example – Bormioli Rocco is an Italian glass packaging and tableware business. The company has had some poor operating results in recent quarters. This has resulted in the Net Debt to EBITDA increasing from around 2.5x to around 3.5x over the space of a year, a negative move but from a low starting point and in our view still manageable.
Hard currency bonds – This is arguably less relevant in the post Draghi “whatever it takes” world, but if we ever return to an environment when any country’s membership of the Eurozone is in doubt, then the currency of a company’s liabilities will also become a factor in limiting your downside risk. If, for instance, the markets begin to entertain the possibility of a euro bond issued under domestic law being re-denominated into a weaker currency, then the price of these instruments would be much more vulnerable than a foreign currency bond (USD or GBP) governed by US or UK law.

Example – Ono, a Spanish cable business, issues both EUR and USD debt. Everything else being equal, USD denominated bonds issued under US law would be the favoured holdings should Spain’s membership of the Eurozone ever be called into doubt.
Value, Value, Value – there is no point in exposing yourself to risk unless you are being compensated for it. There must be a risk premium attractive enough in the first instance to engage with these bonds and issuers. Not only can you capture a favourable yield, but if this risk premium dissipates, bondholders can benefit from additional returns. The table below illustrates the pick up in yield relative to the broader European and US markets for some of the bonds issued by the aforementioned companies. Above everything else, the value argument remains the definitive starting point for looking at potential opportunities.

	Bond	Yield
Guala Closures	EUR 9.375% 2018	7.5%
Fage Dairy Industry	USD 9.875% 2020	8.0%
Bormioli Rocco	EUR 10.000% 2018	8.6%
Ono	USD 8.875% 2018	8.3%

European Currency High Yield*	-	5.3%
US High Yield*	-	6.0%

*Bank of America Merrill Lynch European Currency High Yield Index and US High Yield Index

Source: Bloomberg / M&G as of 27/12/12
Full disclosure: M&G has an interest in the bonds issued by the companies mentioned

Another year over – 2012 returns in fixed income markets

Posted on 28 December 2012 by Anthony Doyle

It’s been another massive year for the global economy. Europe saw LTROs, Greece got a haircut, sovereign downgrades and record high unemployment rates. The peripheral European nations attempted to implement austerity measures with limited success. The US re-elected President Obama and the focus quickly shifted to the upcoming fiscal cliff. In the UK, an Olympics induced bounce in growth was the sole bright spark for an economy which appears to be stuck in quick sand and may well lose its prized AAA rating in 2013.

The IMF, being unusually succinct, probably summed up the state of the global economy the best by entitling their latest World Economic Outlook “Coping with High Debt and Sluggish Growth”. The advanced economies account for around two-thirds of global GDP and if they are sluggish then global growth will be sluggish too.

With all this uncertainty and risk in 2012, how have fixed income markets performed? Surely government bonds will be the safe haven of choice?

In absolute and local currency terms, it’s been another great year for the markets with everything generating a positive return except UK linkers. It’s been a fall in grace for UK linkers, which were actually one of the best returning asset classes of 2011. The UK linker market was buffeted in 2012 by weak growth expectations and uncertainty surrounding proposed changes to the RPI calculation.

But looking elsewhere, investors had the opportunity to secure some excellent returns in 2012 by taking some risk. The best performing asset class of our sample was European subordinated financial debt which registered a return of 29.5%. European high yield wasn’t far behind with a return of 27.1%, followed by Sterling banks which returned 23.0%.

ECB President Mario Draghi and the ECB’s measures to support the Eurozone also had a positive effect of debt investors in peripheral Eurozone debt, with an index made up of bonds from Greece, Ireland, Italy, Portugal and Spain government bonds up 18.7%. Not a bad return for investors considering the question marks hanging over the ability of these nations to service their respective debt obligations in an environment of political uncertainty and recessionary levels of growth.

Other highlights include global high yield (up 18.7%), European peripheral financials (up 17.0%) and US high yield (up 15.6%). At the less risky end of the spectrum, European investment grade corporates returned 12.8% and US investment grade corporates returned 10.2%. Emerging market debt also did well, with EM sovereigns debt posting a fantastic return of 21.4%.

As outlined earlier, it appears that the global economy faces some substantial fundamental headwinds. So how was it that the riskiest asset classes in fixed income have performed the best? Three little words – “whatever it takes”. Mario Draghi’s speech in late July supercharged returns for the riskiest asset classes and stimulated the “dash for trash”. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”.

Well Mr Draghi, the markets have certainly believed you. For example, an index of government debt issued by Greece, Ireland, Italy, Spain and Portugal had up until the speech date generated a return of around 5%. The index ended up generating a 17% return, with investors comforted by Mr Draghi’s comments.

It seems to us that the Ostrich effect (the avoidance of apparently risky financial situations by pretending they do not exist) had a significant impact on markets in 2012. And in a world of ultra-low interest rates and negative real returns in cash, investors must take on risk. It is precisely what central banks are encouraging us to do. But uncertainty breeds volatility and in order to generate higher returns investors must face this volatility head on. It will be a feature of the market in 2013.

About the only thing we can say for certain is that it is unlikely that fixed income will continue to generate excellent returns across the spectrum from government bonds to high yield. For example, double-digit returns in European investment grade are not normal and has occurred only three times in the last seventeen years. On the other hand, the asset class has posted a negative return in only two of those seventeen years, with the largest loss being -3.3% in 2008. In US high yield, the consensus amongst analysts is that high yield markets will generate a return of around 4-6%, the result of coupon clipping. Analysing returns for the asset class shows that a coupon-clipping year has occurred only once in the past twenty-five years.

We posted our bond market outlook last week. It looks like the US may experience a housing induced growth spurt, Europe will eventually get round to dealing with its issues and the UK has a long way to go to secure economic growth. We like non-financial corporates, are worried about EM debt valuations and remain confident that there are still attractive investment opportunities in several areas of the fixed income universe. For an expansion of these views and more, please see here.

Jim’s outlook for 2013. Eurozone volatility, poor emerging market debt valuations and a sterling collapse. Merry Christmas!

Posted on 19 December 2012 by Anthony Doyle

It may not have felt like it, but 2012 has actually been a pretty good year for investors. Bond holders in particular have had a decent 12 months: the government bond bull run has continued and investment grade and high yield corporate debt appears on track to deliver some excellent returns. Major equity markets also look likely to end the year in the black.

These broad-based gains on global stock and bond markets have occurred against a still challenging macroeconomic backdrop. In fact, looking back at our last annual outlook, many of the things we were worried about then – “double dips” and rising indebtedness in developed countries and the risk of a significant policy error worldwide – have not only remained unresolved but have become, in some cases, more of a concern. But it’s not all bad news and we’re pleased to note pockets of progress in some parts of the world.

So what does 2013 have in store for financial markets? In our latest Panoramic outlook, Jim outlines his macroeconomic and market forecasts for the year ahead. And remember, there are still a couple of days left to enter the M&G Bond Vigilantes Christmas quiz for 2012.

Enjoy!

Corporate bond market liquidity – flush or flushed?

Posted on 4 December 2012 by Richard Woolnough

It has been a great few months for corporate bond issuance, as illustrated in the chart below. This huge flush of new transactions where buyer (investor) meets seller (issuer), shows that the primary market is in a historically healthy state, with buckets of liquidity. However, since the credit crunch there has been a great deal of discussion re the corporate bond market becoming less liquid, as dealers’ ability to bid for bonds has gone down the pan. Which is right?

Since the credit crunch began, the financial intermediaries who provide immediate liquidity for bond investors have been under a great deal of capital stress. Losses on securities, more conservative management, and reduced yet more expensive capital, have resulted in a shrinking of their market making balance sheets. This is illustrated in the chart below with data from the Federal Reserve showing primary dealer positions in corporates with maturities of more than a year.

According to some market observers, the above indicates that traders’ ability to take on risk has collapsed by roughly 80 percent, and therefore corporate bond market liquidity must have collapsed significantly in tandem, due to the disappearance of this historic pool of capital to bid for securities. However, we think this is a rather simplistic way for investors to explore what is going on. The chart below shows a far more relevant number than the size of dealers’ books – the actual historic trading volume in secondary corporate bonds, which gives a stronger indication of real, rather than hypothetical liquidity. This shows that turnover has not collapsed 80 percent in the same way as dealer inventory, and in fact daily volumes are on a par with where they were in 2007. It is also worth noting that investment banks’, and their shadow bank counterparts’ percentage of this volume will have fallen, and so it is likely that transactions between genuine end investors have increased substantially in real terms, and as a percentage of this turnover.

Back in 2007 the markets were exceptionally liquid. They were dominated by short term players using cheap regulatory capital to take on enormous credit risk. This was done directly by investment banks on their own account, or to warehouse positions to be sold on to vehicles such as CDOs and CLOs as they were launched. This activity has collapsed. So, along with the more stringent capital environment, the size of their inventories has understandably shrunk considerably. However, making markets and operating in the corporate bond market remains an important source of revenue for these financial intermediaries. Despite less capital being deployed, total secondary volume has recovered to 2007 levels, which means they have become more efficient and turnover per unit of inventory has gone through the roof, as illustrated below. The financial crisis has changed banks’ and investors’ appetites for and abilities to take risk.

The financial crisis has also driven a significant fundamental shift in how capital markets work. The recycling of capital (through the mismatch of risk taken by banks that was the route of the credit crunch) by using short term deposits to lend long term that dominated the landscape in 2007, is now morphing into a new, hopefully more stable process of borrowers being funded via the corporate bond market. Bank lending has shrunk, and the capital markets, led by the expanding bond market have attempted to fill the gap. As bank lending is replaced by more permanent term bond lending, then term mismatch and credit risk in the banking system is reduced, and that term and credit risk is assumed by the bond investor. The bond investor not only gets paid for assuming this risk but also has to work out what liquidity premium they need to be paid on top of the term and credit risk they have taken on board with their corporate bond position.

This premium will vary over the cycle like the other drivers of returns – credit and interest rates. It will expand when credit markets are weak, and liquidity poor (eg autumn 2009). It will contract when the credit outlook is great and liquidity high (spring 2007), and is something all investors need to be aware of when investing in the asset class. An investor in corporate bonds should examine where we are in the liquidity cycle, and should be aware that the perfect liquidity and huge dealer inventories of 2007 contributed to the ensuing rout in the asset class, while the illiquidity of the winter of 2008 was a great opportunity to buy and take advantage of the expanded liquidity premium. We know from the last 5 years that to an investor in corporate bonds, perfect liquidity can be a precursor to more dangerous times than illiquidity can.

Is corporate bond liquidity brilliant or is it at record lows? Well, it appears that daily volume of primary markets is at record levels, while secondary market liquidity has not grown in line with the size of the market place, but is not as low as a simple analysis of dealer inventory would imply. It is hard to know what average daily liquidity should be, as the market has been evolving in the recent dramatic economic conditions. However, the total liquidity of all transactions, both primary and secondary, indicates a growing, interesting market place as banks are being replaced by the corporate bond market as the funding vehicle of choice.