JPM Daily Credit Strategy Update: Time to scale into hyperscalers

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JPM Daily Credit Strategy Update: Time to scale into hyperscalers

start to dwindle again (see latest Oil markets weekly) and Fed expectations reset lower too.

The technical picture remains mixed: inflows dipped to an 11 week low of $6.5bn this week and dealer inventories are at a YTD

high despite somewhat underwhelming bank supply with only half of the big 6 banks issuing debt this past week, for a total of

$25bn of senior debt (along with $3bn subs) versus our Bank analyst Kabir Caprihan’s forecast of $32bn of senior debt. As such,

last week’s total supply of $48bn against a summer high $52bn of reinvestment income has been a positive catalyst for spreads.

Supply likely stays on the lighter side for the next two weeks between earnings blackouts and the Fed meeting at the end of the

month, and with rate hike expectations trending lower again, foreign demand metrics should improve a little.

Nearly every single one of our many recent investor conversations has revolved around different iterations of the same topic -

rationalizing the sharp selloff in hyperscaler spreads recently. In our recent Growing Pains report, we calculate a custom

hyperscaler index and isolate their impact: YoY, JULI is 1bp tighter whereas the hyperscaler index is 61bp wider, which in turn

implies that JULI ex-hyperscaler is in fact 4bp tighter. Thus, the impact of hyperscaler widening on the broader market remains

quite contained, a positive in our view. Looking ahead, earnings are the next key catalyst for the sector, beginning with Google’s

results next week, with credit investors likely to focus more on capex guidance, monetization trends and financing plans than

near-term operating results, which we’d assume will be more than good enough for credit (see the compute must flow from TMT