| | | | | | | Presented By SiriusXM | | | | Axios Markets | | By Emily Peck and Matt Phillips · Jan 26, 2023 | | It's almost Friday. And we're talking bonds, Tesla, and labor laws. Let's go. Today's newsletter is 1,114 words, a 4.5-minute read. | | | | | | 1 big thing: New year, new bond market |  Data: Bloomberg U.S. Aggregate Index; Chart: Axios Visuals Last year's sell-off in the investment-grade corporate bond market — where the most creditworthy U.S. companies borrow money — was one of the worst in history, Axios' Kate Marino writes. - This year: There aren't enough bonds to go around.
The big picture: A possible end to the current rate hike cycle — and the downward pressure those hikes put on bond prices — is coming into sight. - That means that "all the pain that was caused last year by the Fed hiking is about to stop," Matt Brill, Invesco's U.S. head of investment grade credit, tells Axios.
- The pending Fed pause, plus the higher absolute yields that IG bonds now offer — more than 5% on average — are luring investors back into credit.
- "We're seeing inflows pick up, versus outflows last year. And all of a sudden, there's not enough bonds to go around, which is kind of crazy," Brill says.
Between the lines: So far this year, a quirk in bond issuance is igniting even stronger bids in the secondary market, where $10 trillion worth of IG bonds trade. What's happening: Corporate execs seem to think that rates will come back down soon-ish — so they're shying away from issuing longer-term bonds that lock in current market levels. - The evidence: The share of bonds issued this month with maturities in just five years is much higher than usual, while the share of bonds maturing in 20 or more years is significantly lower, data from PitchBook LCD shows.
The impact: Investors tend to like longer-term paper because there's less reinvestment risk. As a result, the relative scarcity of 20+ year bonds in the new issue market has lit up demand for long-dated bonds trading in the secondary market at depressed dollar prices, Brill says. Where it stands: IG bonds are having their best start to the year in at least a decade (check out the chart above). What to watch: One thing that could stop the rally in its tracks? A hard landing for the economy. |     | | | | | | 2. Catch up quick | | ✈️ Southwest posts $220 million loss after holiday woes. (CNBC) ⬇️ IBM to cut nearly 4,000 jobs. (NYT) 👀 NYSE disruption traced to a staffer who left a backup system running. (Bloomberg) | | | | | | | | 3. The Zambia test |  | | | Photo illustration: Sarah Grillo/Axios. Photo: Jean-Claude Coutausse/Getty Image | | | | The first test for African debt restructuring in a post-COVID world is playing out in Zambia, a country rich in copper and loaded with Chinese debt, Axios' Hans Nichols writes. Why it matters: If Zambia, China and international creditors can't come to an agreement on how to restructure Zambia's debt, other African countries might get a glimpse of their fate. It's not pretty. - Unable to pay their bills, and unable to restructure their debt, countries like Zambia will be unable to attract any investors to help them improve their economy — and grow out of poverty.
The big picture: China has agreed, in principle, to help restructure the debt of struggling African economies. But the question remains if China is willing, in practice, to take a haircut on any of the loans it provided. - Zambia, which defaulted on $17 billion of its external debt two years ago, is China's first debt rodeo under the new so-called Common Framework program.
- The G20 created the program in response to the global pandemic — which increased the odds of debt defaults in emerging economies — in order to include China, a new player in the lending game, in any likely international debt-relief negotiations.
That makes the debt question in Zambia bigger than just a single country. Ethiopia and Ghana have also applied for debt restructuring under the program. State of play: The Biden administration and the IMF are swinging into action. - Convincing China, the biggest holder of Zambia's external debt, has been a central push of Treasury Secretary Janet Yellen's private and public diplomacy on her 10-day Africa tour.
- "We will continue to press for all official bilateral and private-sector creditors to meaningfully participate in debt relief for Zambia, especially," Yellen told Zambia's president on Monday. She also called China a "barrier."
Go deeper | | | | | | | | A message from SiriusXM | | Stream SiriusXM now and get 3 months for free | | |  | | | | Stream more than 425 channels on your devices for free on the SXM App, including expertly curated ad-free music, live sports, personalized stations and more. Next steps: Sign up now to get 3 months free. Cancel anytime. Learn more about the offer and start streaming. See offer details. | | | | | | 4. Just a regular old car maker |  | | | Tesla CEO Elon Musk departs court in San Francisco on Tuesday. Photo: Marlena Sloss/Bloomberg via Getty Images | | | | As Tesla becomes a bigger, more mature company, it's increasingly doing things by the book — rather than going against the grain, Axios' Nathan Bomey writes. Why it matters: Tesla has long stood head and shoulders above the crowd in the electric vehicle industry, effectively directing the current. - Now, the company is increasingly flowing with the current — and that means it's looking more and more like a traditional automaker as it grapples with demand challenges, increased competition and choppy market conditions.
Driving the news: In its fourth-quarter earnings yesterday — Tesla reported record profit and revenue — the company signaled that it's stepping back from some of its high-flying tech company ways... - It's juicing demand by lowering prices, not unlike how traditional automakers use incentives to boost sales.
- It's emphasizing the need for cost prudence, not unlike how mature automakers are constantly looking to trim the budgetary fat.
- It announced plans to move away from its tradition of bunching vehicle sales toward the end of each quarter — a strategy it often deployed to meet or exceed sales targets, but which had a punishing effect on workers who had to scramble to deliver vehicles.
State of play: As competition heats up from the likes of General Motors, Ford, Volkswagen, Hyundai, Rivian and Lucid, Tesla's share of new EV registrations in the U.S. in November 2022 (the last month available) was 57.1% — down from 77.8% in November 2021, Axios' Joann Muller reports. Read more | | | | |  | | | | If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. | | | | | | | | 5. Fast food, slow law |  | | | Fast-food workers protesting the push for a referendum in Los Angeles in November. Photo: Genaro Molina/Los Angeles Times via Getty Images | | | | California's groundbreaking fast-food law is heading for a referendum — and a big political fight, Emily writes. - In a big victory for the industry, California's Secretary of State on Tuesday said that enough signatures were collected to trigger a statewide referendum on the landmark Fast Food Accountability and Standards Recovery Act.
Why it matters: The law, AB 257, was hailed as groundbreaking by labor advocates as a way to improve working conditions in the fast-food industry when it was signed by Gov. Gavin Newsom in September. - It would establish a council to set industry-wide health and safety standards and potentially set a fast-food minimum wage as high as $22 an hour.
- The referendum, at a minimum, delays the law's implementation by more than a year. The vote won't be held until November 2024.
Eye-popping stat: Opponents spent nearly $14 million on the ballot measure to challenge the law, per California state records. Read more | | | | | | | | A message from SiriusXM | | Get free access to music, sports, news and more | | |  | | | | Subscribe to SiriusXM Streaming and get access to 3 months of free: - Expertly curated ad-free music.
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More info: Listen on your phone, at home and more with the SXM App. See offer details. | | | | One last thing from Matt: Big news! De La Soul — titans of the golden age of hip-hop — will finally have a full catalog available on major music streaming services, the Hollywood Reporter says. (I've been long flummoxed by its absence.) All of their stuff should be available for streaming starting March 3, including my favorite of their albums, 1991's "De La Soul Is Dead," which is replete with bangers. This newsletter was edited by Kate Marino and copy edited by Mickey Meece. |  | | Why stop here? Let's go Pro. | | | | | | Axios thanks our partners for supporting our newsletters.
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