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00:00:19:15 - 00:00:21:11
Welcome everyone back to Markets Mindset.
00:00:21:11 - 00:00:24:00
I'm Victor Forte, Head of
IG Capital Markets at Mizuho,
00:00:24:00 - 00:00:26:23
and I'm here with, again, Moshe Tomkiewicz,
Head of Debt Capital Markets here.
00:00:27:11 - 00:00:34:18
And Moshe, a lot has been going on in the market, you know, the war in Iran, new Fed chair,
00:00:34:18 - 00:00:42:13
but we're sitting here on the eve of
the rollout of another round of tech earnings.
00:00:42:13 - 00:00:48:07
And what better thing to talk about than the impact that the increased tech supply has had
00:00:48:07 - 00:00:53:01
on the market, and your views of where
spreads are going to be going forward.
00:00:53:01 - 00:00:56:15
One of the things I wanted to focus on today was something that's kind of changed a little bit
00:00:56:15 - 00:01:01:03
in the complexion of the market, was some
of the issuance sectors that we've seen
00:01:01:03 - 00:01:05:02
get real heavy lately, most notably the hyperscalers, right, in the tech space.
00:01:05:02 - 00:01:10:11
So think about it, year-to-date,
$1.3 trillion of issuance at this moment.
00:01:10:11 - 00:01:18:20
Those numbers are up 102% on a net basis, 34% on an absolute basis, corporates up 41%.
00:01:18:20 - 00:01:20:09
The numbers are holding steady,
00:01:20:09 - 00:01:21:22
and we'll talk about that later
00:01:21:22 - 00:01:23:20
at four plus times over subscription
00:01:23:20 - 00:01:25:17
at about five basis point new issue concession,
00:01:25:17 - 00:01:29:22
but the real thing is the issuance tied to AI,
00:01:29:22 - 00:01:31:13
and obviously in the hyperscaler space,
00:01:31:13 - 00:01:33:22
and when we look, you think about utilities,
00:01:33:22 - 00:01:35:00
tech and communications,
00:01:35:00 - 00:01:38:03
you have utility spaces up 47%
year-to-date in issuance,
00:01:38:03 - 00:01:43:10
tech up 117%, communications up 277%,
00:01:43:10 - 00:01:45:14
so, the issuance is there,
00:01:45:14 - 00:01:48:20
and we've seen the hyperscalers hit the market
00:01:48:20 - 00:01:50:18
time and time again in multiple ways,
00:01:50:18 - 00:01:53:03
but directly, obviously.
00:01:53:03 - 00:01:57:04
Talk to me about how that supply has changed
the complexion of what's in the market,
00:01:57:04 - 00:02:00:12
it's changed the complexion of the
indexes that people are looking at
00:02:00:12 - 00:02:01:18
and the opportunities that they have.
00:02:02:01 - 00:02:04:21
Great question, so tech is clearly
00:02:04:21 - 00:02:07:07
the sector of focus for the market.
00:02:07:07 - 00:02:09:20
And it's funny, when you go back
00:02:09:20 - 00:02:13:09
and look at where we were, call it a year ago,
00:02:13:09 - 00:02:15:09
when this tech supply first hit,
00:02:15:09 - 00:02:17:10
it was a bit of a shock to the market,
00:02:17:10 - 00:02:19:23
it was a bit of a repricing for the market,
00:02:19:23 - 00:02:23:13
but investors gradually got their arms around it,
00:02:23:13 - 00:02:25:12
they looked at the balance sheet strength
00:02:25:12 - 00:02:28:01
of most of these hyperscalers,
00:02:28:01 - 00:02:30:00
they were looking at CapEx expenditures,
00:02:30:00 - 00:02:33:00
which were up a lot, but they were manageable
00:02:33:00 - 00:02:35:13
given the balance sheets that we were dealing with,
00:02:35:13 - 00:02:38:00
so we built a big moat around tech.
00:02:38:03 - 00:02:43:05
And we came into 2026, at least the market came in 2026, feeling like they had their arms around it.
00:02:43:08 - 00:02:43:16
Correct.
00:02:43:20 - 00:02:44:17
They knew what was coming.
00:02:44:20 - 00:02:51:11
Correct, and what we didn't expect was that these CapEx expenditures were going to continue
00:02:51:11 - 00:02:53:15
to get higher and higher and higher,
00:02:53:15 - 00:02:56:23
and that they were going to continue
to look at us to fund it,
00:02:56:23 - 00:03:01:10
and then we were seeing a string of
transactions that were coming out of the space
00:03:01:10 - 00:03:03:21
that were underperforming in
the secondary market.
00:03:03:21 - 00:03:07:14
I know we'll talk about spreads later,
but we've had a repricing of that sector.
00:03:07:14 - 00:03:08:01
I know we'll talk about spreads later,
but we've had a repricing of that sector.
00:03:08:01 - 00:03:09:00
I know we'll talk about spreads later,
but we've had a repricing of that sector.
00:03:09:00 - 00:03:16:04
So with those deals not going well, and
with the supply dynamic continuing to
00:03:16:04 - 00:03:20:04
increase out of the space,
remember, when we think about tech,
00:03:20:04 - 00:03:25:16
it's not just about hyperscalers, it's
increasingly a multi-pronged phenomenon.
00:03:25:16 - 00:03:27:05
You have the hyperscaler universe,
00:03:27:05 - 00:03:33:07
but now you have data center supply with a backlog of close to $100 billion of that.
00:03:33:07 - 00:03:38:11
Then you need to fund the chips that
are going to be housed in those facilities,
00:03:38:11 - 00:03:43:06
and that could be three to five X of
what the actual data center financing is.
00:03:43:06 - 00:03:48:08
And all these deals are being marketed
off of the hyperscaler credit.
00:03:48:08 - 00:03:52:05
That's a supply phenomenon that
the market was not ready for.
00:03:52:12 - 00:03:53:17
Well, let's look at those numbers, right?
00:03:53:17 - 00:03:58:02
$54 billion approximate of 144A data center
00:03:58:02 - 00:04:03:15
structured supplies come to the market
since the Beignet deal from last year.
00:04:03:15 - 00:04:07:11
There is, by the time this actually airs,
you'll probably have another $12 billion
00:04:07:11 - 00:04:09:05
that'll hit approximately.
00:04:09:05 - 00:04:13:14
And then there's rumors of two other transactions that probably take us up somewhere around
00:04:13:14 - 00:04:21:19
80 to 90 billion at least of data center, 144A
supply that has as its ultimate credit,
00:04:21:19 - 00:04:25:18
you know, the leases, the same
hyperscalers you've been talking about.
00:04:25:18 - 00:04:30:22
So it was interesting when we first had that issuance, as you do with a lot of structured—
00:04:30:22 - 00:04:35:11
or semi-structured issuance, there's a
premium to the underlying credit
00:04:35:11 - 00:04:38:19
that it starts out at and then it tightens in.
00:04:38:19 - 00:04:42:21
What we're seeing now is a little bit of softening in that because we've gone from people
00:04:42:21 - 00:04:47:04
understanding the structure to now having
to deal with the fact that they see what,
00:04:47:04 - 00:04:52:20
a lot of supply coming down the road and it's hard to determine where is that supply supposed
00:04:52:20 - 00:04:56:04
to end up to clear relative to the
underlying credits, I would assume?
00:04:56:16 - 00:04:58:09
Correct, correct.
00:04:58:09 - 00:05:01:23
And I think to your point about the index composition is an important one,
00:05:01:23 - 00:05:05:03
because if you look at the market through that lens,
00:05:05:03 - 00:05:09:10
there is room to run in this sector
from a capacity perspective.
00:05:09:10 - 00:05:13:10
I think the best comp for tech is the financials.
00:05:13:10 - 00:05:15:23
They're the biggest sector in the market,
00:05:15:23 - 00:05:19:16
they issue in generally very big size.
00:05:19:16 - 00:05:21:11
So that's a good one to look at.
00:05:21:11 - 00:05:27:08
And they're about a little bit over 30% of the index where the hyperscalers are kind of mid single digit.
00:05:27:08 - 00:05:30:03
So through that lens, there's a lot of room.
00:05:30:03 - 00:05:35:04
But, that hyperscaler index doesn't
include all the data center supply.
00:05:35:04 - 00:05:39:22
And I think the way the financials approach
the market relative to what we've seen
00:05:39:22 - 00:05:43:05
in tech, comes at the expense of capacity.
00:05:43:05 - 00:05:44:16
And what do I mean by that?
00:05:44:16 - 00:05:47:08
Well, everybody knows when
the banks are going to issue,
00:05:47:08 - 00:05:49:05
they're going to issue right after they report.
00:05:49:05 - 00:05:51:22
They're generally going to issue 10 years and in.
00:05:51:22 - 00:05:59:10
And so that gives investors a fair amount of time to position appropriately ahead of that issuance.
00:05:59:10 - 00:06:04:02
And when they do that, that increases the
likelihood that they're going to perform well.
00:06:04:02 - 00:06:07:21
That's the exact opposite
situation we've seen in tech.
00:06:07:21 - 00:06:11:04
How many surprise $25 billion deals
have we seen in our space?
00:06:11:05 - 00:06:13:00
—How many surprise CapEx
announcements do you get?
00:06:13:04 - 00:06:14:12
Exactly, exactly.
00:06:14:12 - 00:06:16:17
So people aren't positioned for it.
00:06:16:17 - 00:06:19:01
So the deals don't go as well as they should.
00:06:19:01 - 00:06:23:00
And most importantly, they don't
perform as well as they should.
00:06:23:00 - 00:06:28:08
And that increases the likelihood that we start seeing a spillover effect into the broader market.
00:06:28:13 - 00:06:30:07
So let's talk about that performance, right?
00:06:30:07 - 00:06:35:01
We mentioned it before, which is, things
seem to be in good stead.
00:06:35:01 - 00:06:38:16
You had one of the big hyperscalers,
obviously hit a lot of different currencies
00:06:38:16 - 00:06:39:07
over the course of that time—
00:06:39:09 - 00:06:40:05
A couple of them did—
00:06:40:06 - 00:06:40:20
—diversified their funding, right?
00:06:40:21 - 00:06:41:15
— a couple of them did, yeah.
00:06:41:18 - 00:06:47:12
You also had one who kind of moved more to equity after getting through a lot of debt.
00:06:47:12 - 00:06:50:04
There was a lot of diversification that was attempted by a lot of people.
00:06:50:04 - 00:06:55:01
And we kind of ran into the end of
May and sort of hit the tights.
00:06:55:01 - 00:06:58:20
But if we look at what's happened since then,
and we'll include the broader tech space too,
00:06:58:20 - 00:07:01:10
you had the SpaceX
transaction, which unfortunately
00:07:01:10 - 00:07:04:07
is wider by 50 to 60 basis points at this time.
00:07:04:07 - 00:07:07:18
You've had each of the hyperscalers
widen out anywhere from,
00:07:07:18 - 00:07:11:14
call it 10 or 15 basis points to 20 to 30 basis points.
00:07:11:14 - 00:07:14:21
Their curves have steepened
over the last month and a half.
00:07:14:21 - 00:07:20:07
Also lost 20 basis points plus in treasuries and 10-year treasuries since that moment in time.
00:07:20:07 - 00:07:25:06
The interesting thing, I think, about it
has been as that space adjusts
00:07:25:06 - 00:07:30:11
to the potential of more supply, the rest of the market has been pretty ring-fenced.
00:07:30:11 - 00:07:34:19
When I think about it, yes, the overall
index spread is above 75
00:07:34:19 - 00:07:37:08
right now we're sitting at 77, I think it was.
00:07:37:08 - 00:07:40:18
But that pull's come from a lot of
the tech and hyperscaler names.
00:07:40:18 - 00:07:44:03
The rest of the market seems to be,
00:07:44:03 - 00:07:47:04
I don't want to use the word oblivious to it,
but it's been impregnable
00:07:47:04 - 00:07:50:01
to kind of what's gone on in tech so far.
00:07:50:05 - 00:07:51:20
But as we talked about in the past,
00:07:51:20 - 00:07:55:17
we've seen credits, I remember
in the old days, GE,
00:07:55:17 - 00:07:59:07
a lot of debt outstanding at one time for
what they were, a AAA at that moment,
00:07:59:07 - 00:08:02:21
traded wide of its name by 20, 30 basis points.
00:08:02:21 - 00:08:09:04
We had some telecom companies who had large debt complexes outstanding that traded wide.
00:08:09:04 - 00:08:12:15
We now have a bunch of companies who will have
00:08:12:15 - 00:08:17:19
probably bigger debt complexes than any of those names I just mentioned at some point in time.
00:08:17:19 - 00:08:22:05
They're now trading wider than
00:08:22:05 - 00:08:25:19
where their ratings are supposed to
put them and trending the wrong way.
00:08:25:19 - 00:08:28:06
When do you think they've widened out?
00:08:28:06 - 00:08:32:04
When do you think either they've gotten to the point where they can clear the kind of supply
00:08:32:04 - 00:08:35:23
or where do you think the inflection point is where the rest of the market has to stand up
00:08:35:23 - 00:08:37:18
and take notice on a relative basis?
00:08:37:18 - 00:08:41:06
That's the question that every single
strategist is trying to answer.
00:08:41:06 - 00:08:45:09
And the only way you can really
do for it is look for signs, all right?
00:08:45:09 - 00:08:51:23
And so one of the big signs, to your point,
is how is non-tech going in primary,
00:08:51:23 - 00:08:55:10
and more importantly,
how's it trading in secondary?
00:08:55:10 - 00:08:58:08
And so far, both of those
boxes have been checked,
00:08:58:08 - 00:09:01:22
which when we see that, that
means the moat is holding.
00:09:02:03 - 00:09:08:00
I thought when we talk about the tech space being kind of firewalled or off to the side right now
00:09:08:00 - 00:09:10:05
in terms of its performance,
00:09:10:05 - 00:09:13:07
your team did a really good
analysis of tech versus,
00:09:13:07 - 00:09:17:10
I think it was healthcare because they've
had a lot of larger deals, M&A, etc.,
00:09:17:10 - 00:09:19:18
over the last, call it, nine months plus.
00:09:19:18 - 00:09:23:03
And the performance is striking
between those two spaces, correct?
00:09:23:03 - 00:09:23:11
And the performance is striking
between those two spaces, correct?
00:09:23:16 - 00:09:26:09
Yes, because if you look at that analysis,
00:09:26:09 - 00:09:31:16
you'll see those healthcare deals out-traded
tech by close to 30 basis points,
00:09:31:16 - 00:09:35:02
which in IG is a really big number.
00:09:35:02 - 00:09:36:14
And why is that?
00:09:36:14 - 00:09:41:05
Well, when the healthcare deals
come, it's for a finite M&A,
00:09:41:05 - 00:09:45:02
could be a big deal, but it could also be
a smaller deal, but the market knows
00:09:45:02 - 00:09:47:19
exactly what needs to be funded
00:09:47:19 - 00:09:51:14
and what does that represent of
their funding need, all right?
00:09:51:14 - 00:09:53:20
Tech, you just don't know that.
00:09:53:20 - 00:09:58:17
And Meta announces a $25 billion
deal out of what?
00:09:58:17 - 00:10:03:19
Because even if they told you out
of, this will represent X percent,
00:10:03:19 - 00:10:06:18
that number can change in a month.
00:10:06:22 - 00:10:07:06
Right.
00:10:07:16 - 00:10:15:13
And so that puts credibility much more
on the side of healthcare versus tech,
00:10:15:13 - 00:10:18:21
and that's why we're seeing the type of outperformance we've experienced.
00:10:19:04 - 00:10:24:16
So we obviously are going to get through tech earnings season here, that’s going to start,
00:10:24:16 - 00:10:25:15
and that's going to really shape—
00:10:25:16 - 00:10:26:10
Yeah, and I think—
00:10:26:11 - 00:10:26:23
—the difference here.
00:10:27:02 - 00:10:34:03
I think it's important to note that we're filming this on the day of Google releasing after the bell.
00:10:34:03 - 00:10:38:15
And the market, given all the price
action that we've seen in credit,
00:10:38:15 - 00:10:41:11
and recently in the equity market,
00:10:41:11 - 00:10:46:00
the market is going to be very fixated
on the CapEx guide from Google,
00:10:46:00 - 00:10:49:12
as well as the other hyperscalers.
00:10:49:12 - 00:10:54:22
And if we're in a situation that we
see a really adverse reaction
00:10:54:22 - 00:10:57:10
by credit on some of these announcements,
00:10:57:10 - 00:11:00:04
that's a bad fact pattern
for the equity market
00:11:00:04 - 00:11:06:05
because these guys are going to spend and if we start raising up the yellow flag in credit,
00:11:06:05 - 00:11:08:20
they're going to just lean on that much
heavier on the equity market.
00:11:09:02 - 00:11:11:07
Right, now look, as you mentioned,
00:11:11:07 - 00:11:14:01
by the time this airs, you're
going to have started to get
00:11:14:01 - 00:11:17:06
the tech rollout of earnings, and
that will shape a lot of this.
00:11:17:06 - 00:11:23:11
So let's go back and let's close this on a little bit more forward-looking, generic view of the world.
00:11:23:11 - 00:11:30:03
So we have Labor Day, latest it can be,
September 7th this year.
00:11:30:03 - 00:11:33:03
When you back up Labor Day, you
don't back up blackout season.
00:11:33:03 - 00:11:35:19
So you have a very compressed
September for supply.
00:11:35:19 - 00:11:39:21
Do you think that means we're going to have a pretty heavy August as people try to pull forward
00:11:39:21 - 00:11:43:02
if they can, to kind of get away from September?
00:11:43:02 - 00:11:45:05
And talk to me about,
00:11:45:05 - 00:11:49:15
is that to just get away from September or is it
to try to get as far in front of, maybe, midterms
00:11:49:15 - 00:11:50:22
and other things
going on right now?
00:11:51:02 - 00:11:55:01
So I think August has a potential
to be a record month for the market.
00:11:55:01 - 00:11:58:09
I think part of that is driven
by, obviously, the calendar.
00:11:58:09 - 00:12:01:17
And I think it's more in
terms of getting ahead
00:12:01:17 - 00:12:07:03
of more tech supply and other
supply than about the midterms.
00:12:07:03 - 00:12:13:04
Given all the dynamics you talked about, I think spreads have hit a pretty hard floor.
00:12:13:04 - 00:12:20:15
So unless we start viewing 2027
as kind of peak CapEx for AI,
00:12:20:15 - 00:12:25:10
unless we see a magical end to the war,
00:12:25:10 - 00:12:28:21
I think it's going to be tough for spreads to
pierce the tights we saw earlier this year.
00:12:29:05 - 00:12:36:23
Right, and to put that in context for people right, we hit, what, 71 on the Bloomberg Index in January.
00:12:36:23 - 00:12:40:19
We were at 75, probably, sometime mid-May.
00:12:40:19 - 00:12:45:09
We then came back down in and now
we're back above 75 and trending
00:12:45:09 - 00:12:46:09
the wrong way at this moment.
00:12:46:15 - 00:12:47:09
Correct.
00:12:47:20 - 00:12:49:10
So I'm going to summarize for you,
00:12:49:10 - 00:12:55:00
you don't think there's really any end that you foresee right now to what's going on in Iran.
00:12:55:09 - 00:12:56:00
Correct.
00:12:56:02 - 00:12:57:14
Oil prices are back up at $84.
00:12:57:14 - 00:12:59:02
VIX is inching back up,
00:12:59:02 - 00:13:01:04
the MOVE index is back up a bit.
00:13:01:04 - 00:13:06:07
You don't see any change in the
Fed, given the data that's coming out.
00:13:06:07 - 00:13:09:18
Hands are somewhat tied a
bit to, kind of, do something.
00:13:09:18 - 00:13:10:20
You think they're going to sit and wait?
00:13:10:23 - 00:13:14:21
But if anything, they're going to lean in more hawkishly just given what's going on in oil.
00:13:15:15 - 00:13:19:09
So there's my question for you, you're
not looking at a rate hike here in July—
00:13:19:10 - 00:13:19:18
No.
00:13:19:19 - 00:13:22:18
—but when do you think that rate
hike possibly kicks in?
00:13:22:21 - 00:13:24:18
I think September's a live meeting,
00:13:24:18 - 00:13:28:21
which is why those couple
of days after Labor Day
00:13:31:05 - 00:13:33:09
have been such a discussion point with our borrowers looking at the market in that timeframe.
00:13:33:20 - 00:13:35:08
Moshe, thanks again for being here.
00:13:35:08 - 00:13:36:07
It was a pleasure as always.
00:13:36:07 - 00:13:39:10
And I guess we'll be back together in
about two months after the summer
00:13:39:10 - 00:13:42:12
and after the Fed's meeting and
we'll take stock of what happened.
00:13:42:12 - 00:13:45:06
Until then, thanks everybody for joining
here at Markets Mindset.
00:13:45:10 - 00:13:45:18
Thank you.