Making Corporates Great Again
Wells Fargo Fixed Income Sales
April 2017
Stephen Bennett
WFS and its investment representatives do not act as Municipal Advisors and only provide investment advice or recommendations with respect to bond proceeds as permitted by available exemptions
Table of Contents
2
I. Corporate Bonds 101
II. Positioning on the Curve
III. The Supply Situation
IV. Cross Sector Relative Value
V. Resources
Corporate Bonds 101
� Corporate bonds are debt obligations issued by corporations for a variety of purposes including purchasing new equipment, investing in research and development, stock buybacks, paying shareholder dividends, refinancing debt and financing mergers and acquisitions, to name a few
� Corporate bonds can be described as either investment grade (high grade) or non-investment grade (high yield or junk), as distinguished by the associated bond credit rating which assesses the relative riskiness of the issuer to default
� Corporate bonds pay back principal to an investor at maturity of the obligation (bullet securities) and periodic interest (typically semi-annually) specified at initial pricing. Interest on corporate bonds is taxable
� Corporate bonds differ from corporate stock in that bonds do not represent an ownership interest in a company, whereas company stock or equity does represent an ownership interest. Bonds represent debt obligations that are paid back from company cashflows
� Corporate bond issues can be split into various industry /sector classifications including:� Telecom, Media, Technology
� Consumer discretionary
� Consumer staples
� Energy
� Financials
� Healthcare
� Industrials
� Materials
� Technology
� Utilities
4
Corporate Bonds
Source: Wells Fargo Securities, Bloomberg
� Level one
� Level two� Level three
� Level four
Moodys S&P Fitch
Aaa AAA AAA
Aa AA AA
A A A
Baa BBB BBB
Ba BB BB
B B B
Caa CCC CCC
Ca CC CC
C C C
5
Corporate Bond Ratings
There are both long and short-term bond ratings in the Corporate bond universe.
Investment grade bonds are rated Baa3/BBB- or better,
whereas non-investment grade bonds are rated Ba1/BB+ or
lower.
Long-Term Bond Ratings
Short-Term Bond Ratings
Source: Wells Fargo Securities, Moody’s, Standard & Poor’s, Fitch
Moodys S&P* Fitch*
P-1 A-1 F1
P-2 A-2 F2
P-3 A-3 F3
NP B B
*S&P & Fitch rating scales continue. S&P: B, C, D / Fitch: B, C
Investment Grade
Non-Investment Grade
Investment Grade
Corporate Bond Ratings
6
� Numbers 1-3 or + / - may accompany a bond to denote its relative riskiness within a rating category, with 1 / + as a better rating than a 2 or 3 / -
� A rating outlook indicates the direction a rating is likely to move over a one to two-year period and reflects trends that have not yet triggered a rating action, but that may do so if the trend continues
� Outlooks can be defined as
� Stable
� Positive
� Negative
� Outlooks are associated with long-term ratings
� An outlook change does not necessarily mean a bond rating will change nor does a stable outlook mean the rating will not change
Rating Watch
Rating Outlook
� A rating watch indicates a heightened probability of a rating change and the likely direction of such a change, defined as
� Positive
� Negative
� Evolving
� A rating watch is typically event-driven and generally resolved over a relatively short period of time
� A rating watch may also exist to communicate implications for certain events should they occur, or otherwise known as triggering events (i.e. shareholder or regulatory approval)
� A rating change may not always be precipitated by a rating watch change
Source: Wells Fargo Securities, Moody’s, Standard & Poor’s, Fitch
Corporate Bond Ratings
� A parent company /subsidiary relationship can take on multiple structures as demonstrated in the figures. A parent can have one or multiple operating companies associated with it in addition to varying percentages of ownership
� Parent companies and their operating companies/subsidiaries can have different ratings depending on a variety of factors, including:
� Access to liquidity (i.e. Central Banks)
� Leverage (debt and equity)
� Tax advantages (operations in multiple countries)
� Cross Guarantees / Support Agreements
� Industry Outlook
7
Parent Company
(A2 / A+)
Operating Company
(Aa3 / AA)
Parent Company
(A2/A)
Operating Company
(A3/A-)
Operating Company
(Baa/BBB)
Foreign Subsidiary Company
(A2/A)
Source: Wells Fargo Securities, Moody’s, Standard & Poor’s, Fitch, DBRS
Primary versus Secondary
8
Primary Secondary
Corporate bonds trade in both the primary and secondary
market.
� After bonds have been publicly issued, they then trade in the secondary market
� Liquidity for a corporation’s bonds can be determined by:
1. How often the bonds trade in the secondary market
2. The bid/ask spread
3. The deal size and type of investor (s) who hold the security
4. How many bonds trade in the market at any given time
� When bonds are initially offered to the public, they are brought to market via a syndicate process
� An issuer chooses a broker-dealer to price and offer its bonds to the public
� Orders are received by those investors who express interest in purchasing the bonds and the broker-dealer will then allocate bonds to investors accordingly
� Investors that are fully allocated receive the number of bonds requested
� Investors that are partially allocated receive only a portion of the bonds requested
� Investors that are unallocated do not receive any of the bonds requested
Source: Wells Fargo Securities
Coupon Structure
9
Fixed
Floating
Zero Coupon
Insert slide callout
Corporate bonds can be issued in three structures: fixed,
floating or zero coupon. The structure refers to the coupon
payment.
� A zero coupon bond does not pay any interest over the life of the bond but instead the investor purchases a security at a discount to par. With this structure, the investor receives all owed principal plus accrued interest at the bond’s final maturity
� A floating-rate bond pays a variable interest payment at a specified interval over the life of the corporate bond. This variable interest payment will consist of an underlying benchmark plus a spread
� Investment grade corporate bonds typically reset at 3-month intervals, but may reset monthly, semi-annually or annually
� A fixed-rate coupon bond pays a consistent interest payment at a specified interval over the life of the bond
� Coupon payments are usually paid on a semi-annual basis
Source: Wells Fargo Securities
Issuance Types
10
Commercial Paper*
Convertible Bond
Yankee Bond
Insert slide callout
Corporate bonds can be issued in a variety of sub-types beyond
traditional categories.
� A bond denominated in U.S. dollars that is issued in the U.S. by a foreign entity (bank or corporation)
� Convertible bonds can be converted into a predetermined amount of the company’s equity after a defined time period (the bond’s call date). This option can be exercised by the bond holder or the issuer, depending on the conversion structure
� Commercial paper (CP) is a negotiable, short-term promissory note issued for a specific amount and matures on a specific date. CP is flexible and can be issued with maturities ranging from 1 day to 397 days
Source: Wells Fargo Securities *For a thorough discussion on Commercial Paper, please refer to Wells Fargo’s Commercial Paper 101
Commercial paper offerings are subject to investor qualification
Corporate Bonds
11
Insert slide callout
Corporate bonds can be issued with a variety of final maturities
and described by maturity buckets (i.e. money market,
short-term, medium-term and long-term).
Source: Wells Fargo Securities
Long-TermExceeding 12 Years
� The parameters listed below are meant to serve as general final maturity limits.
Medium-Term5 – 12 Years
Short-Term 1 – 5 Years
Money Market0-1 Year
� This approach is more quantitative
� The objective is to identify specific companies using particular metrics, for example:
� History of earnings growth
� Ratio analysis
Top Down
� This approach is more qualitative
� The objective is to identify investment themes through looking at:
� Macroeconomic environment
� Sector/industry growth
� Geopolitical landscape
Bottom Up
12
Corporate Bond Analysis: Credit Outlook
� While both top-down and bottom-up approaches have a similar goal, their methodologies are markedly different
Source: Wells Fargo Securities
Corporate Bond Analysis: Credit Outlook
13
� While both top-down and bottom-up approaches have a similar goal, they approach credit analysis differently
Top Down Bottom Up
Sector/Industry Outlook
Maturity/Liquidity Profile
Geopolitical Landscape
Ratings Categories
Macroeconomic
Peer Analysis Within Sector
Outlook for Industry
Revenue / Earnings Growth Expectations
Sub / Senior / Guarantees
Cashflow, EBITDA, Debt, etc.
Relative Value
Source: Wells Fargo Securities
� Economic/Market risk
� Market and economic dynamics can affect new corporate bond issuance as well as trading spreads
� Credit risk
� Measured by the likelihood of default. This risk is calculated in both the bond rating as well as the spread over the appropriate Treasury rate
� Interest rate risk
� Fluctuations in interest rates can cause movements in the price and subsequently, the bonds yield and return, if sold before maturity
� Liquidity risk
� Liquidity can fluctuate based on an individual issuer dynamics. An investor should not rely on dealer liquidity as a backstop
� Call risk
� Some corporate bonds are issued with a make-whole call which gives the issuer the option to call a bond prior to maturity
� Inflation risk
� As inflation fluctuates, so will an investor’s real return
Benefits
� Diversification
� The universe of available corporate bonds is vast, encompassing different sectors of the economy as well as a range of investment objectives (interest rate, maturity, etc), for short-term investors, diversification away from financial risk is very important
� Steady income
� Most fixed income corporate bond securities pay interest semi-annually, allowing for a steady income stream to the investor
� Attractive yields
� Corporate bonds can offer a higher yield than similar-maturity government bonds
� Liquidity
� The market is very large (almost $8 trillion outstanding at the end of 2016) and secondary trading is quite active
Considerations
14
Investment Benefits and Considerations
Source: Wells Fargo Securities
� Level one
� Level two� Level three
� Level four
� Diversification
� Industries/Sectors
� Issuers
� Maturities
� Credit research and analysis
� There are a variety of resources for investors to acquire knowledge of a corporation and its debt such as rating agency reports, credit analyst reports, etc.
� Credit monitoring
� Ongoing monitoring of corporate bonds to analyze rating changes, spread changes as well as current news, will help investors manage risk
15
Managing Risk
Investors can manage and/or reduce risk in a variety of ways.
Source: Wells Fargo Securities
Largest Corporate Bond Offerings
16
� Proceeds used to finance acquisition of its wireless unit from Vodafone
� Offering was issued with the following maturities:
� 3Year, 5Year, 7Year, 10Year, 20Year and 30Year
� Proceeds used to finance acquisition of Botox maker Allergan Inc.
� Offering was issued with the following maturities:
� 1Year, 2Year, 3Year, 5Year, 7Year, 10Year, 20Year, and 30Year
� Proceeds used to finance purchase of DirecTV
� Offering was issued with the following maturities:
� 5Year, 7Year, 10Year, 20Year and 30Year
$49 BillionBaa1 / BBB+ / A-
Verizon Wireless
September 2013
$21 BillionBaa3 / BBB- / BBB-
Actavis PLC
March 2015
$17.5 BillionBaa1 / BBB+ / A-
AT&T
April 2015
Source: Wells Fargo Securities, Bloomberg
The Supply Situation
Debt Issuance Trends
18
U.S. debt outstanding has dramatically increased over the past 20 years, but total debt outstanding has grown at a
slower pace in the last 2 years.
Treasury debt accounts for the largest sector in terms of debt
outstanding, followed by corporate debt.
Source: SIFMA, Wells Fargo Securities, LLC
U.S. Bond Market Debt Outstanding by Sector
0.0
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
40,000.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
$ Billion
Municipal Treasury Mortgage Related
Corporate Debt Federal Agency Securities Money Markets
Asset-Backed
Corporate Debt Issuance Trends
19
The U.S. investment grade corporate bond market has
continued to grow, particularly as rates reached all-time lows.
Comparing 2006 to 2016 total debt outstanding, IG corporate debt has risen by almost $3bn.
U.S. Bond Market Debt Outstanding - Corporates
0.0
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
40,000.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
$ Billion
Municipal Treasury Mortgage Related
Corporate Debt Federal Agency Securities Money Markets
Asset-Backed
Source: SIFMA, Wells Fargo Securities, LLC
2017 YTD IG Corporate Debt Issuance
20
2017 Corporate Investment Grade Issuance
Overall investment grade corporate bond issuance in 2017 is surpassing volume from 2016, continuing to reach new all-time
levels in terms of both par amount and number of new issues due to a strong start to
the year.
And although rates are rising, the overall rate environment is
still at historical lows.
Source: SIFMA, Wells Fargo Securities, LLC
0
10
20
30
40
50
60
70
80
90
0
20
40
60
80
100
120
140
160
180
200
January Febuary March
# of Deals
$Par (Bn)
2016 Par 2017 Par 2016 # of Deals 2017 # of Deals
Investment Landscape: Short-Term Securities
21
There are various corporate structures available for
investment one-year and in, including corporate bonds.
Fixed Income Corporates < 1 Year
Source: Wells Fargo Securities, LLC, Bloomberg , iMoneyNet, DTCC
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
O/N 1 Mo 3 Mo 6 Mo 9 Mo 1 Yr
A1/P1 CP A2/P2 CP AA Industrials AA Financials AA Consumer Staples
A2/P2 CP
A1/P1 CP
AA Consumer Staples
AA IndustrialsAA Financials
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U.S.
Corporates
1-3 Years
5.33%
Mortgages
0-3 Years
WAL
2.80%
Asset
Backed
Securities
0-3 Years
2.60%
Asset
Backed
Securities
0-3 Years
4.73%
U.S.
Treasuries,
1-3 Years
7.32%
U.S.
Agencies
1-3 Years
7.05%
U.S.
Corporates
1-3 Years
14.69%
Mortgages
0-3 Years
WAL
5.42%
Mortgages
0-3 Years
WAL
3.15%
U.S.
Corporates
1-3 Years
4.49%
U.S.
Corporates
1-3 Years
1.78%
U.S.
Corporates
1-3 Years
1.19%
Asset
Backed
Securities
0-3 Years
2.74%
Asset
Backed
Securities
0-3 Years
2.16%
Mortgages
0-3 Years
WAL
2.15%
U.S.
Corporates
1-3 Years
4.71%
Mortgages
0-3 Years
WAL
6.95%
U.S.
Treasuries,
1-3 Years
6.61%
Asset
Backed
Securities,
0-3 Years
13.80%
U.S.
Corporates
1-3 Years
4.86%
Municipals
1-3 Years
2.37%
Asset
Backed
Securities,
0-3 Years
1.88%
Municipals
1-3 Years
1.07%
Mortgages
0-3 Years
WAL
1.10%
U.S.
Agencies,
1-3 Years
2.18%
U.S.
Corporates
1-3 Years
1.82%
U.S.
Corporates
1-3 Years
1.89%
Mortgages
0-3 Years
WAL
4.64%
U.S.
Agencies
1-3 Years
6.74%
Mortgages
0-3 Years
WAL
5.27%
Mortgages
0-3 Years
WAL
5.98%
Asset
Backed
Securities,
0-3 Years
3.35%
U.S.
Corporates,
1-3 Years
1.76%
Mortgages
0-3 Years
WAL
1.61%
Mortgages
0-3 Years
WAL
0.91%
Asset
Backed
Securities,
0-3 Years
0.89%
Municipals
1-3 Years
2.08%
Municipals
1-3 Years
1.28%
U.S.
Agencies
1-3 Years
1.77%
U.S.
Agencies
1-3 Years
4.52%
U.S.
Corporates
1-3 Years
5.67%
Municipals
1-3 Years
5.16%
Municipals
1-3 Years
4.21%
U.S.
Treasuries,
1-3 Years
2.35%
U.S.
Treasuries,
1-3 Years
1.55%
Municipals
1-3 Years
1.03%
Asset
Backed
Securities
0-3 Years
0.78%
Municipals
1-3 Years
0.72%
U.S.
Treasuries,
1-3 Years
1.90%
U.S.
Agencies
1-3 Years
1.18%
U.S.
Treasuries
1-3 Years
1.67%
U.S.
Treasuries
1-3 Years
3.96%
Asset
Backed
Securities
0-3 Years
4.84%
Asset
Backed
Securities
0-3 Years
-1.22%
U.S.
Agencies
1-3 Years
2.17%
U.S.
Agencies
1-3 Years
2.32%
U.S.
Agencies
1-3 Years
1.53%
U.S.
Agencies
1-3 Years
0.85%
U.S.
Agencies
1-3 Years
0.424%
U.S.
Agencies
1-3 Years
0.70%
Mortgages
0-3 Years
WAL
1.83%
U.S.
Treasuries,
1-3 Years
0.91%
Municipals
1-3 Years
1.41%
Municipals
1-3 Years
3.25%
Municipals
1-3 Years
4.70%
U.S.
Corporates
1-3 Years
-2.68%
U.S.
Treasuries,
1-3 Years
0.79%
Municipals
1-3 Years
1.29%
Asset
Backed
Securities,
0-3 Years
1.49%
U.S.
Treasuries
1-3 Years
0.43%
U.S.
Treasuries
1-3 Years
0.36%
U.S.
Treasuries
1-3 Years
0.62%
Source: Bloomberg, Federal Reserve, Wells Fargo Securities, LLC
Returns shown are the annual total returns of select Bank of America Merrill Lynch indices. This Table of Short Duration Returns is a comprehensive representation of relative sector
performance for a 10-year period through 12/31/2014. This material is offered compliments of Wells Capital Management to its clients. It is for your own personal information and we are not
soliciting an action based upon it. Past performance is not indicative of future results.
Investment Landscape: Annual Returns for Short Duration Sectors
0
1
2
3
4
5
6
22
Source: Bloomberg, Federal Reserve, Wells Fargo Securities, LLC
Returns shown are the annual total returns of select Bank of America Merrill Lynch indices. This Table of Short Duration Returns is a comprehensive representation of relative sector
performance for a 12-year period through 12/31/2006.
Investment Landscape: Annual Returns for Short Duration Sectors
23
6 1994 1995 1996
5
Mortgages
0-3 Years
WAL
2.184%
Mortgages
0-3 Years
WAL
12.486%
Mortgages
0-3 Years
WAL
6.156%
4
Asset Backed
Securities
0-3 Years
1.625%
U.S. Corporates
0-3 Years
11.717%
Asset Backed
Securities
0-3 Years
5.882%
3
Municipals
0-3 Years
1.311%
U.S. Treasuries
0-3 Years
10.999%
U.S. Corporates
0-3 Years
5.712%
2
U.S. Corporates
0-3 Years
1.182%
U.S. Agencies
0-3 Years
10.935%
U.S. Agencies
0-3 Years
5.377%
1
U.S. Treasuries
0-3 Years
0.569%
Asset Backed
Securities
0-3 Years
9.945%
U.S. Treasuries
0-3 Years
4.979%
0
U.S. Agencies
0-3 Years
0.267%
Municipals
0-3 Years
7.220%
Municipals
0-3 Years
4.108%
7 1999 2000 2001
6
Asset Backed
Securities
0-3 Years
4.830%
Mortgages
0-3 Years
WAL
8.992%
U.S.
Corporates
0-3 Years
9.585%
5
Mortgages
0-3 Years
WAL
4.677%
U.S. Agencies
0-3 Years
8.544%
U.S. Agencies
0-3 Years
8.635%
4
U.S.
Corporates
0-3 Years
3.904%
Asset Backed
Securities
0-3 Years
8.004%
U.S.
Treasuries
0-3 Years
8.300%
3
U.S. Agencies
0-3 Years
3.508%
U.S.
Treasuries
0-3 Years
7.995%
Asset Backed
Securities
0-3 Years
8.155%
2
U.S.
Treasuries
0-3 Years
3.063%
U.S.
Corporates
0-3 Years
7.608%
Mortgages
0-3 Years
WAL
7.792%
1
Municipals
0-3 Years
2.507%
Municipals
0-3 Years
5.678%
Municipals
0-3 Years
6.041%
6 2004 2005 2006
5
Mortgages
0-3 Years
WAL
2.802%
Asset Backed
Securities
0-3 Years
2.602%
Asset Backed
Securities
0-3 Years
4.725%
4
Asset Backed
Securities
0-3 Years
2.161%
Mortgages
0-3 Years
WAL
2.151%
U.S.
Corporates
0-3 Years
4.714%
3
U.S.
Corporates
0-3 Years
1.820%
U.S.
Corporates
0-3 Years
1.888%
Mortgages
0-3 Years
WAL
4.638%
2
U.S. Agencies
0-3 Years
1.183%
U.S. Agencies
0-3 Years
1.767%
U.S. Agencies
0-3 Years
4.515%
1
Municipals
0-3 Years
1.275%
U.S. Treasuries
0-3 Years
1.668%
U.S. Treasuries
0-3 Years
3.963%
0
U.S. Treasuries
0-3 Years
0.907%
Municipals
0-3 Years
1.406%
Municipals
0-3 Years
3.253%
24
Investment Landscape: U.S. Corporate Bonds (1-3 Years)
Corporate spreads have demonstrated stability during
the three previous rate-tightening cycles.
Source: Wells Fargo Securities, Bloomberg, Yield Book
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0.0
50.0
100.0
150.0
200.0
250.0
300.0
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Basis Points
OAS Fed Rate Hike
U.S. Corporate Bonds (1-3 Years)
25
Investment Landscape: U.S. Corporate Bonds (1-5 Years)
Corporate spreads have demonstrated stability during
rate tightening cycles
Source: Wells Fargo Securities, Bloomberg, Yield Book
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0.0
50.0
100.0
150.0
200.0
250.0
300.0
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Basis Points
OAS Fed Rate Hike
U.S. Corporate Bonds (1-5 Years)
26
Short-term corporate OAS has tightened with the 1-3 Year and the 1-5 Year indices trending below their longer-term five-Year average.
Source: Bloomberg, Wells Fargo Securities, LLC
Investment Landscape: Investment Grade Corporate Bonds
1 – 5 Yr Corps and TSYs 1 – 3 Yr Corps and TSYs
70
75
80
85
90
95
0.0
0.5
1.0
1.5
2.0
2.5
3.0
12/30 1/30 2/28
Spread (RHS) Corp 1-5 Year TSY 1 - 5
65
75
85
0.0
0.5
1.0
1.5
2.0
2.5
12/30 1/30 2/28
Spread (RHS) Corp 1-3 Year TSY 1 - 3
27
Investment Landscape: U.S. Corporate Bonds (1-3 Years)
1-3 Year corporate notes are mostly trading within their 4-Year median spread levels, and
pushing tighter.
Source: Wells Fargo Securities, Bloomberg
2013 – 2017 1-3 Year HG OAS by Sector
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
Median - 25th 75th - Median Last
28
Investment Landscape: U.S. Corporate Bonds (1-3 Years)
1-3 Year corporate note yields are very much a sector story, with materials and energy
issuers seeing sharp movements higher in yields earlier this year and then falling dramatically.
Most other issuers have been more in line with rate
movements.
While spreads are tightening, yields are still pushing higher, suggesting that rates markets are selling off more sharply.
Source: Wells Fargo Securities, Bloomberg
2013 – 2017 1-3 Year Yield Dispersion
0.00
1.00
2.00
3.00
4.00
5.00
6.00Consumer Discretionary Consumer Staples Energy Financials
Health Care Industrials Information Technology Materials
Telecommunication Services Utilities
Investment Landscape: Short-Term Securities
29
There are various corporate structures available for
investment five-years and in, including corporate bonds.
Fixed Income Corporates – 5 Years
Source: Wells Fargo Securities, Bloomberg, iMoneyNet, DTCC
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
O/N 1 Mo 3 Mo 6 Mo 9 Mo 1 Yr 18Mo
2 Yr 30Mo
3 Yr 4 Yr 5 Yr
A1/P1 CP A2/P2 CP AA Industrials AA Financials AA Consumer Staples
A2/P2 CP
A1/P1 CPAA Consumer Staples
AA Industrials
AA Financials
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Median Credit Rating Months Prior to Default
� The chart below plots more than 2,000 corporate issuers defaulting between 1983 to 2016
� Historically, issuers have been downgraded to B1 by Moody’s as early as five years prior to actually defaulting
Default Risk
Source: Moodys Investors Service, Wells Fargo Securities, LLC
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Defaults by Sectors
� Credit quality weakened the most in 2016 within commodity sectors. Otherwise credit weakness was lower than the historical average for most sectors.
Default Risk
Source: Moodys Investors Service, Wells Fargo Securities, LLC
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Distribution of Corporate Ratings in the S&P 500
� The majority of Corporate Issuers are rated within the A to BBB rating category based on Standard & Poors’ rating scale
Distribution of Credit Ratings in the S&P 500 Index
Source: Moodys Investors Service, Wells Fargo Securities, LLC
Resources
� Fixed Income Sales
� Strategy
� Investment policy samples
� Market trends and sector analyses’
� Research
� Analyst reports and insights
Industry Resources
� SEC Filings
� Company Press Releases
� Company Management Presentations
� Investor/Analyst Meetings
� Credit Reports
� News Publications (i.e. Wallstreet Journal, Financial Times, Reuters, etc)
Wells Fargo Resources
34
Resources
� There are many resources available to investors to learn more about Corporate bonds and keep up with fixed income capital markets.
Source: Wells Fargo Securities, LLC
35
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