🚂 Off track

Plus: All dried up | Monday, October 24, 2022

Open in app View in browser   Presented By Aon   Axios Markets By Emily Peck and Matt Phillips · Oct 24, 2022 👋 Welcome back. Today's the 84th anniversary of the 40-hour work week in the U.S., but workers are still fighting for some pretty basic benefits, as we report below. Plus, resident bond sleuth Kate Marino has updates from the bond market, where things are 😬. Today's newsletter is 911 words, a 3.5 minute read.     1 big thing: Off the rails Illustration: Gabriella Turrisi/Axios   A standoff over paid sick leave between railroad companies and their third largest union is raising the prospect of a worker strike — and Christmastime economic disaster — even after the White House brokered a deal to avoid that fate, Emily writes. Why it matters: It's a sign of the changed landscape for labor in the post-pandemic era that the state of the nation's economy now hangs on worker demands for a fairly basic benefit — paid time off for illness. Even though railroad unions were able to negotiate a substantial pay raise in their agreement, they say it doesn't address certain intolerable workplace conditions. Driving the news: Last week, negotiators for the railroad companies rejected the Brotherhood of Maintenance of Way Employes (BMWE) Division of the International Brotherhood of Teamsters' demand for seven paid sick days. The parties will likely continue negotiating this week. Catch up quick: The railroads and their 12 unions have been negotiating a new contract for more than two years. Last month, the Biden administration brokered a deal, which the unions are now voting on. Six voted yes. A surprise "no" vote came in earlier this month from BMWE; they wanted a better deal. What they're saying: The railroads say it's too late to negotiate over sick leave. "It's not something to be slapped on in the waning days of a bargaining round that's lasted for over two years," Ian Jefferies, the CEO of the Association of American Railroads, an industry trade group, tells Axios. The other side: Sick leave has long been a point of contention and is why some members voted down the deal, Peter Kennedy, director of strategic coordination at BMWE, tells Axios. He recognized the stakes: "We don't want to harm the economy. But we also don't want our members to be without basic human protection." Meanwhile: Even the rail companies' customers say they should give workers what they need. "To say the paid sick leave policy for rail workers is woefully inadequate would be an understatement," wrote the CEO of the National Association of Chemical Distributors in SupplyChainDive last week. What we're watching: On November 17, the two largest unions announce their votes, and a few days later the deadline for BMWE's cooling off period expires. The possibility of a holiday strike looms. Read more     2. Catch up quick 📈 China said Q3 GDP grew 3.9%, beating expectations, after delaying the release last week. (CNBC.com) 🇬🇧 Rishi Sunak, the U.K.'s former chancellor, looks poised to be the next prime minister. (Bloomberg) 📦 China's exports to sanctioned Russia rose 21%, more than overall export growth. (Reuters)     3. Only if you're desperate Data: Pitchbook LCD; Chart: Axios Visuals That line is what it looks like when an entire segment of the bond market all but dries up, Axios' Kate Marino writes. State of play: The chart shows the average interest on newly issued deals in the high-yield bond market, where companies with the lowest credit ratings borrow money (junk bonds, if you're old school). The only other time in recent history the cost was this high? During the Global Financial Crisis. Why it matters: The Fed's rate hikes have pushed up the cost of borrowing so much — and spawned such volatility — that only companies that really, really need the money are bothering to brave the market. Not surprisingly, those tend to be the most desperate for cash. And the riskier the company, the more it has to pay. So far this month, only five companies tapped the market (usually there are dozens by now), according to Pitchbook LCD. One example: AMC Entertainment. The movie theater chain parlayed meme stock mania into over $1 billion in equity issuance since last year — and CEO Adam Aron proclaimed his New Year's resolution was to refinance AMC's debt into something less expensive. But, but, but: The bond market didn't oblige. AMC is paying 15% on new bonds that closed last week — and the loans that got refinanced cost the company 11.25%. Those 11.25% loans were set to mature in less than a year, though … see what I mean about desperation?     A message from Aon New research: making better decisions in uncertain times     Global professional services firm Aon surveyed more than 800 senior leaders across the U.S., the EU, the United Kingdom and Canada to understand how confident leaders are preparing their organizations for a looming global recession. Here's what sets them apart.     4. Recession prep Data: ICE BofA U.S. High Yield Index; Chart: Axios Visuals If you're looking for a sign that investors are increasingly expecting an economic downturn — here it is, Kate writes. In the high-yield bond market, where the riskiest companies borrow, investors are dumping lower credit quality bonds (those rated "CCC" and lower) faster than others. The big picture: Investors get paid more to lend to riskier companies. In a strong economy, they're more likely to take on that risk for the extra return. But in downturns, companies with the weakest balance sheets are the most vulnerable to problems, so investors tend to cycle into higher quality bonds. That's been happening this year, and has accelerated in the past few months. Go deeper: Over the course of 2022, yields on pretty much every type of bond have shot up as the Fed hiked rates. But some have shot up more than others. The strongest high-yield companies (rated "BB") are up by 4.15 percentage points … while "CCC" bonds are up by an eye-watering 8.6 percentage points. The gap between the two has widened out to over 9 percentage points, from just 4.6 points at the start of the year — as the chart above shows. What to watch: That "decompression" will probably continue — as will the trend toward wider spreads across corporate credit, Matt Nest, global head of active fixed income at State Street Global Advisors, tells Axios.     A message from Aon Are leaders ready for a global recession?     79% of global business leaders expect a recession within the next year, according to Aon's 2022 Executive Risk Survey. Okay, but: Only 35% say they feel very prepared for it. Explore the survey results to find out what sets these executives apart.   Was this email forwarded to you? Sign up here! Today's newsletter was edited by Kate Marino and copy edited by Phoebe Neidl. Why stop here? Let's go Pro. Join the thousands of professionals using Axios Pro to keep up with the companies, deals and trends changing their industries.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. 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