Navigating Market Uncertainty – A Capital Markets Update

CIBC PERSPECTIVES

Navigating Market Uncertainty – A Capital Markets Update

Tuesday, April 15, 2025

Roman Dubczak- Deputy Chair, CIBC Capital Markets

Hello everyone. I’m Roman Dubczak, Deputy Chair at CIBC Capital Markets. It’s been a turbulent couple of weeks in the global capital markets, driven by unexpected and unprecedented global trade developments. These developments are driving political and macroeconomic uncertainty, which in turn, are unleashing historic levels of volatility across all asset classes. Our clients are in the unenviable position of having to navigate these markets in terms of directing capital investment, positioning portfolios and charting a path in an uncertain future. In today’s session, we’re bring our best-in-class team at CIBC together to discuss how they are looking at markets, and what our clients should be considering in these volatile times.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

With me today are Ian Pollick, Managing Director and Head of Fixed Income, Currency and Commodities.

Tyler Swan, Managing Director & Global Head, Equity Capital Markets, CIBC Capital Markets

Dan Parrack, Managing Director, Debt Capital Markets, CIBC Capital Markets

And joining me virtually from our New York office are Liz Garvey, Executive Director, US Capital Markets Syndication, and Brad Aston, Managing Director and Head of Global Leveraged Finance.

Thanks all for joining today. So, let me start with Ian.

Ian, crazy week. Broadly speaking, how’s the trade war impacted your view on the economy and your forecast? i.e, how has your life changed in the last week?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Roman Dubczak, Deputy Chair, CIBC Capital Markets

So, a lot.

– Yeah.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Listen, I think relative to the start of the year, there’s two channels that we’re really starting to think about, and it’s obviously growth and inflation. You know, when you’re in a dark and unfamiliar room, the best thing you can do is stand still. The problem is the whole world is standing still at the exact same time. And so, whether it’s consumption, whether it’s business investment, our overall view of growth is now much lower than it was six weeks ago. And so that’s concerning. Now at the same time you have inflation expectations that are rising, whether because of price pressures, whether movements in global foreign exchange markets. And so, when I add those two things together, we now have more of a stagflation silhouette in our forecast than we did six weeks ago. For central banks, it’s not very obvious because we’re not getting the aggressive interest rate cuts you would normally associate with this much volatility, this much uncertainty. And so, until you get this ‘all-clear’ that inflation is not long lasting. I’m not going to use the word

Roman Dubczak, Deputy Chair, CIBC Capital Markets

– Not the word. Not the ‘T’ word.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

You’re not going to end up getting the type of interest rate response that you would normally associate. When I think about the bond market, our view hasn’t really changed all that much, to be honest with you. We still expect a very U-shaped approach to the level of longer-term interest rates this year, and we think that we’re at almost that bottom part of the U right now, Over the course of 2025 and into 2026, 10-year yields, 30-year yields should probably be relative to where we are at the start of the year, or a little bit higher.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Okay. Well good set up for equity investors, Tyler. How are equity investors looking at this market?

Tyler Swan, Managing Director & Global Head, Equity Capital Markets, CIBC Capital Markets

Most clients, as you expect in this environment, are quite anxious. But if you drill down to the numbers, fund flows into equities looking at equity ETFs have been quite positive through this piece. So, investors are buying the dip even if they are anxious. To frame the general sentiment, I would think of it as we’re in a relief rally now. That relief rally was triggered by the pause in the tariffs. A view would be that maybe that pause results in countries outside of China, some trade and negotiations happen, and we end up in a more reasonable spot. On the China side, I think investors are more cautious. And that could be a more protracted negotiation. And certainly, the equities that have China exposure either domestically or in supply chain are some of the ones being pressured. As Ian mentioned, tariffs are going to add to inflation to what was otherwise a soft landing. And the tariffs combined with consumer spending is likely to weigh on GDP growth. And if you go back to the beginning of the year to now, that GDP growth is probably across the street, consensus has come down 25, 50-basis points. Sectors getting hurt, the equity market are those that are economically exposed. So, energy’s getting hurt. Tech’s getting hurt. Consumer discretionary. It’s really the defensives that have been the ones that have rallied. So, utilities, consumer staples. Now we’re heading into earnings season. Early expectations based on those that are early reporters a lot of companies will be withdrawing guidance. We’ve got 9% S&P 500 earnings growth factored into the market at the moment. Maybe that gets pressured a little bit as companies report and they’re a little more cautious in their outlook. And then the market is trading at about 20 times earnings. So, that’s a fairly full number lower than where it was a few months ago, but still a very full valuation. So, we see the buying of the dip. And we also hear from investors that they’re more muted in their expectations of how far that rally could go until we get some tariff resolution.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

All right. Thanks, Tyler. You know you raise earnings season, and these earnings reports come out every quarter. But oh, my goodness, is it going to be interesting to listen to forecasts during these are earnings season this quarter. It’s going to be quite something. Dan, Liberation Day started all of this action. In your market, year-to-date has been, I would think, amongst the busiest in the globe. Like, how are your investors, the debt buyers in the Canadian market, looking at how of play this situation?

Daniel Parrack, Managing Director, Debt Capital Markets, CIBC Capital Markets

Yeah, it’s been an interesting start to the year, Roman. I mean, and you can contrast against what the first three months looked like and what the last two weeks looked like. The first three months it was the second busiest Q1 we’ve ever seen in the Canadian debt capital markets. Just shy of $42 billion was issued by corporates and banks. Contrast that to last two, two-and-a-half weeks, we’ve seen zero issuance. And you have to go back to March 2009, the Global Financial Crisis defined the same, drought period of two weeks where we haven’t seen issuance in the Canadian market. So, exceptionally rare. And I think what it tells us is, uncertainty keeps individuals from making decisions. And the new issue bond market in Canada at least, is no different. I think what we’d say from the syndication perspective though, is the markets not closed. It’s just waiting to be reopened. And I know we always have these conversations in a box with what we know today. We’ve actually reopened the market today. Believe it or not, with a hybrid issuance and an asset backed security deal. So, the Canadian has now seen supply since the April 2nd advance. But we have some confidence that there’s some staying power here. And we’re not too worried about it. We were just waiting for it to reopen. And I think the investor base is well positioned, defensively positioned. And we’re seeing that with respect to reverse inquiries come in to our desk. Two, where we think the issuer base was well prepared for this. You know, they frontloaded their issuance into Q1. And three, to your point on earnings blackouts, it’s a seasonally quiet time for us. So, we’re not seeing that angst in the market. We don’t have that backlog. That could cause some chaos if we did have a closed market. So, we’re just not seeing that. And I think the question that we get was what really reopens our market? Obviously, that conversation can change day-to-day right now. But really, we follow cues from, the US and European markets. And we’ve started to see that over the last couple of days. I’m sure we’ll hear from Brad and Liz on that front, but the clarity, the direction and the confidence that we see from those markets in terms of concessions paid, secondary trade flow on the break are really instructive for our Canadian borrowers. And I think if history’s a guide, the names in the sectors that lead us out of these in the Canadian market, so, what we’re still looking for, for further confidence, is highly rated, regulated businesses, sectors with lots of liquidity. And in this specific situation, those that are less impacted by tariffs. So, think about A-rated utilities. Think about highly liquid banks… Those are the items that lead us out. And if I was going to switch the script a little bit over to the investor side,

Roman Dubczak, Deputy Chair, CIBC Capital Markets

– Sure.

Daniel Parrack, Managing Director, Debt Capital Markets, CIBC Capital Markets

… just to give you a sense of the liquidity there, I mean, credit spreads are wider in Canada. The Canadian Investment Grade index is 10-basis points wider from April 2nd. It’s about 25-basis points, wider from late 2024. But the $CAD markets outperformed global indices. If you put the same script on the US, you’ve probably seen widening about one If you put the same script on the US, you’ve probably seen widening about one and a half to two times the magnitude that we’ve seen in Canada. So, in the Canadian market, we’ve seen an orderly widening of spreads. And we’ve seen our investor base, show us that they’re well positioned, defensively positioned. There’s no sign of panic, so far. Redemptions we have not seen. It’s been very orderly. What I would mention as well, that much of the bond inflows and the organic cash return to investors over the last six months or so, has been conservatively placed in the market. We feel, from our conversations with investors, lots of Government of Canada’s Money Market Funds, Short-Dated Credit Provincials, have been bought recently. So, they’re well positioned to kind of move out the curve. And if I was going to give you an anecdote of what we’ve seen lately, since April 2nd, those that are actually selling the Canadian bond market right now are doing so because it’s outperformed. They’re moving those funds into the US market, which is underperformed. Those that are buying the Canadian market right now are those domestic Canadian captive, mandates that are taking defensive or underweight positions, bringing them to neutral weight, or if they’re able to short the market before, they’re covering those short positions. So, we’ve seen a well-functioning, two way trade flow market with a net bias to buy the market at this stage, which should give our issuers some confidence. The last thing I’ll mention here is, we have a high level of investor engagement, and we measure that on the syndicate desk with the amount of reverse inquiries we see. Reverse inquiries, meaning orders for new issue product. And I think that’s an acknowledgment from our investor base that credit is a a mean reverting asset class versus equities, which tends to trend over time. So, investors in the credit world know that they’re not going to be able to re-risk their portfolios all at the peak of the credit cycle, they need a leg in over time. So, the best way to express that view is to utilize the new issue market, and reverse requires a way to do that.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Very good. So, in a nutshell, getting busier, I guess. Hopefully. – Yeah, yeah. Good. Well, Liz, speaking of busy, the US investment grade market has been remarkably busy, over the last many, many months. has been remarkably busy, over the last many, many months. Years, I guess. How are things looking, from your perch?

Liz Garvey, Executive Director, US Debt Capital Markets Syndication, CIBC Capital Markets

Yeah, I can relate to a lot of the points that Dan made. In taking a look at IG credit here. Since the tariff-tantrum started, we’ve seen investment grade credit spreads widen out anywhere from 10 to 15, to 60 to 65-basis points across credit curves. When you look at the IG Index, we hit our 2025 high last week of 121. And to put that in perspective, the all time low for that index was 77. And we hit that just four months ago in November of 2024. I think it’s important to look back historically at that index to see how credit has performed during market disruptions. When you go back to the Global Financial Crisis in 2008, the IG Credit Index hit a 600. Looking at Covid, March 2020, the IG Index was at 400. And more recently, during the Regional Bank Crisis, we saw that IG Index hit 150. So, although we’ve seen this credit widening right now, may seem quite severe, its credit remains much more contained from prior market disruptions. Taking a look at the primary market, we are off a record Q1 $558 billion in issuance, the busiest Q1 we’ve ever had. April tends to be a bit of a slower month. We have issuers that are in earnings blackout. We did have a slow start to April with all the volatility in the market. We have seen a pickup. Right now, month-to-date, we’re at $50 billion. $35 billion of that price within the last two days. We are very encouraged of what we’ve seen in the market over the past few days, in terms of investor engagement. Concessions are there, but they’re, not at the height of what we’ve seen historically. So, markets are very much open. I think our message right here is our markets are open for issuers. We expect volatility to continue, but there will be windows of opportunity for issuers to access these markets in the short-term.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Great. Thanks Liz. Now Brad over to you. The LevFin markets in the US, obviously quite sensitive to economic outcomes. How have they performed, especially in light of all the stress that some of the underlying credits might be under in this context?

Brad Aston, Managing Director & Head, Global Leveraged Finance, CIBC Capital Markets

So, I think interesting just to sort of set the table, and similar to some of the themes in Investment Grade, you know, through the first quarter of, this year, we were at long-term historical tights in terms of high yield spreads inside of 300-basis points, as sort of top decile territory, in terms of spread tightness. And so, we’ve been telling our clients for quite a while that, the going was unlikely to get better than it had been for the last 2 or 3 quarters in terms of new issue access points for issuers. And so, when you have that sort of a set up for the shock that the market received, in and around Liberation Day, we were poised for a pretty dramatic set of, numbers in terms of where secondary levels went. So, in a matter of 3 or 4 days, we had the high yield index, in terms of spreads widened out by 150-basis points. If you look to your question, Roman, at the lower end of the Triple C Index, sold off in 2 or 3 days by about 220-basis points, and in the leveraged loan market, which is, generally a secured asset class and is a little bit more insulated from that sort of volatility, you had loan bids dropped by two points in a day or two, which, is relatively dramatic. And, with all that, not surprisingly, we saw basically a complete freezing of the primary markets, that hasn’t really reopened, even is sitting here today. So, we’ve had 2 to 3 weeks, without any real, primary issuance volume. On the technical side of it, in terms of the, the cash sitting in the institutional investor’s pockets, we had two of the largest cash outflows from, high-yield and leveraged loan funds last week, of all times, $9.5 billion from high-yield, about $6.5 billion from leveraged loans. And so, the technical backdrop for this asset class has deteriorated pretty, pretty meaningfully, over the last couple of weeks. And I will say, if we just look at the last 2 or 3 days, we have seemed to find our footing a little bit. We’ve retraced some of those numbers. The, high yield spreads sits today at about 410. So, it’s tightened by about 40-basis points. But a good portion of that pickup has obviously been treasuries selling off over the last few days. So, secondary market conditions have settled down. But after a pretty extreme selling off. And I think in terms of, the go-forward with the market is really looking for stability. I think we can price new deals in a stable market environment. And the all in yields, available, especially in the sort of the Double B, area of the credit quality spectrum are probably acceptable for most issuers with financing needs. But what the market can’t, quite digest is the volatility we’ve had over the last couple of weeks. So, we need a few more days, of calmer waters.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yes, a few more days of calmer waters, like, I’ll tell you and thank you. These were all great comments. I’ve been in this business for over three decades. The words that you’re saying do not… the numbers you’re using are so big, yet you’re all so calm, so good on you, actually, for being terrific professionals in, relaying this information because it is like these numbers are crazy in terms of, the breakouts. So, just in the back half of this webcast, I’m going to have each one of you to provide guidance and things to watch out for our clients and Ian I’ll start with you. You know, clearly, we’ve had some wacky moves in the market over the last week or so, and things hopefully are settling down as we record this episode. What are the unintended risks like? What are. I hate to use the word black swan, but what are the tail risks, in this scenario?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

– Sure.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Or could bad things go so?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

I don’t think to my esteemed colleagues that, anything has settled down. And I think one of the unintended consequences is if you take a step back and say, “Well, what’s really happening here?” You’re trying to rewire global trade, okay? And if you’re rewiring global trade, you’re rewiring global money flows. Supply chains are payment chains in reverse. And so, there’s something that’s non-linear about that. And so, there was always going to be an accident when you ship the flow of money very abruptly. That’s number one. Number two is what we saw over the past couple of weeks is that, when inflation expectations are high, when actual inflation is above target, bonds are a very bad hedge to a risk-off environment. I do not expect that to change. And so, the construction of broader portfolios is built on the idea of diversification. Correlations are breaking down all over the place. That’s something that I think is part and parcel with that first type of unintended consequence. Now there’s some good news here. And I think the biggest unintended consequence is that some of the tariff economies, whether it’s Canada, Europe may actually overstimulate themselves. You could see interest rates fall over time. Not long-term rates, but policy rates. You could see fiscal stimulus kick in at a time where maybe U.S. trade policy becomes a bit more benign. And so, that leads to a very big risk for materially higher interest rates in 2026. Again, longer-term rates, higher inflation, faster growth. That isn’t a terrible combination.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

No, undoubtedly. That’s, that’s quite interesting. Okay. Thanks Ian. So, Tyler, in terms of issuance going forward, any guideposts, you know, the throw away question to Equity Capital Markets professionals are what about IPOs and what’s the IPO calendar like? We don’t need to lean into heavily on that because I think it’s a little self-evident. But any guidance you could offer like for the near-term would probably be appreciated by our clients.

Tyler Swan, Managing Director & Global Head, Equity Capital Markets, CIBC Capital Markets

Sure. So, maybe to start with where we were on the IPO market leading into this volatility. In the US, there’s a steady cadence of IPOs going back last year. Not record levels, but steady flow of IPO activity across many sectors. A theme on companies waiting a little bit longer until they’re a little bit bigger and more substantial to do their IPOs, then say we had in the go-go 2021, but a steady cadence. In Canada, almost no IPO activity the last few years, but a very big building pipeline for starting really the end of this year, maybe middle of this year with 2026 expected to be, a larger year. If I think about where we are in the markets now, there wasn’t really any new issue activity the last couple of weeks until we, broke the market open again with a deal by Capital Power. February and March, actually quite active despite all of the tariff noise, two of the more active months. So, I think going forward here, it’s going to be very company specific if they’re impacted by tariffs, for example. But I think we’ll see regular new issue activity from here on out. Maybe there will be some shocks to the market that put a little bit of a pause on it. But we’re hoping for regular activity. That IPO timeline maybe pushed off a little. So, there are a number of IPOs in the US that officially postpone their IPOs that had been targeted to go out in the near-term. They’re likely not to turn the switch and go right back to the market. But I do think if we get, a level of stability in the markets, we’ll start to see that US IPO activity resume. In Canada, it’s probably the same picture. More back end waited for this year, and then a bigger year next year.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Okay, good. Thanks, Tyler. Dan, you know, you alluded to the fact that things are slowly normalizing, or the pace is picking up. What would you direct our clients to be looking for in the next, I would say a couple of weeks? Let’s not get over our skis here.

Daniel Parrack, Managing Director, Debt Capital Markets, CIBC Capital Markets

I think there’s two things, and Ian I totally understand. The volatility in the market and we acknowledge that too. So, I think the first thing is the definition of what a window market looks like. So, we advise our issuers be is as nimble as prepared and ready as possible because we used to define windows in ‘days and weeks’. And now we’re defining windows in ‘mornings and afternoons’. So, just being prepared to react to those calm periods and market stability, is important. The second thing I’ll remind the audience it’s watching this, especially from an insurer base, is that one of the hallmarks of the Canadian market is it is insulated, it is less volatile than global markets. So, for those corporations that are Maple bonds, foreign domiciled issuers looking at Canada or bigger corporations in Canada that have multi-currency options for raising funds, this is when the Canadian market tends to look very attractive from an arbitrage perspective. So, keep Canada in mind. Watch those pricing pages that come out because Canada might be closer than you think.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Good. Good. Liz, how about over to you, about in the US investment grade market?

Liz Garvey, Executive Director, US Debt Capital Markets Syndication, CIBC Capital Markets

Very similar to Dan’s playbook. These windows of opportunity, you know, we expect volatility to continue here. You know, for the short-term certainly. And we’re advising issuers to be ready to access those markets during those windows of opportunity. Again, the past two days, we priced $35 billion in supply. So, the depth of the market is there. But issuers need to be ready to pull the trigger as soon as that the market opens up.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. Thanks Liz. And Brad, finally with you, I’m going to add a little nuance to your question in that issuance is market dependent, but what impact do you think this, recent volatility has had on the whole Private Equity and Private Capital space? Because that is a whole phenomena, in and of itself. And do you think this disrupts it or the deals keep getting done?

Brad Aston, Managing Director & Head, Global Leveraged Finance, CIBC Capital Markets

Sure. Thanks, Roman. So, what I would say is again, the backdrop here is 2 or 3 years of relatively muted M&A activity globally. And that, that certainly applies to, the Private Capital space as well. And so, coming into 2025, I think, we all thought the table was set for a relatively breakout year on that front. And obviously this last two weeks has thrown a bit of cold water on, the M&A landscape and outlook going forward. So, what we’re seeing in real time is, M&A processes basically being pushed to the right. And, if they’re active, bid deadlines getting extended, or if they’re in the prep phase, the launch, being pushed out until the world is a little bit more of a predictable space. For instances where buyer and seller can come to agreement on price, and those and these processes get to that point, capital is abundant in the sub-investment grade market in the US and private capital, as you alluded to, has raised, trillions of dollars to put to work in just this sort of an environment. So, if 2022 and 2023 is any guide, when we had the broadly syndicated leveraged finance markets freeze up a bit and private capital stepped in to take share and put money to work, I would expect ‘25 to repeat, of that. And I think those will keep underwriting banks in a broadly syndicated market, in check and looking to remain active and maintain share again, provided we can get some stability in the market and risk can be priced.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Great. Well thanks Brad. Thanks everyone. Ian, Tyler Dan, Liz and Brad. Great insights. All I can say is, let’s keep our energy up. It feels like we’ll be needing it in the coming weeks. And I want to thank all our clients for joining us today. We’re all in this together and so don’t hesitate to reach out at any time to any of us are on the CIBC team. Happy to help and hope to see you again soon. Thanks.

CIBC PERSPECTIVES:

Navigating Market Uncertainty – A Capital Markets Update

Hosted by:

Roman Dubczak, Deputy Chair, CIBC Capital Markets

With:

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Tyler Swan, Managing Director & Global Head, Equity Capital Markets, CIBC Capital Markets

Daniel Parrack, Managing Director, Debt Capital Markets, CIBC Capital Markets

Liz Garvey, Executive Director, US Debt Capital Markets Syndication, CIBC Capital Markets

Brad Aston, Managing Director & Head, Global Leveraged Finance, CIBC Capital Markets