New Fed Tracker Shows Rising Strains in Corporate Debt​​​

A new Federal Reserve gauge is showing moderate but rising signs of distress in trading of high-quality corporate bonds, reflecting investor jitters about a slowing economy, the Wall Street Journal reported. The alert comes from a new measurement called the Corporate Bond Market Distress Index, or CMDI, which the Fed’s New York branch plans to update once a month. The first snapshot, offered yesterday, shows greater strain for the roughly $5 trillion market for U.S. investment-grade corporate bonds, compared with historically low levels in newly released back-looking data from late last year. On the index’s zero-to-one scale, where lower numbers signal calmer conditions, the latest data show a distress reading of 0.36 for high-quality bonds, a significant rise compared with levels as low as 0.08 last November. Despite the climb, the index is well below records from previous crises, such as the 2008 financial meltdown. Central-bank policy has roiled debt markets in 2022 as officials try to tame prices by cooling the economy. Persistent inflation has led the Fed to raise interest rates faster than it has in nearly 30 years, provoking one of the deepest bond-market routs in decades. The yield on the benchmark 10-year U.S. Treasury note has risen to 3.091% through yesterday’s trading, from 1.496% at the end of last year. Corporate bonds also have faced pressure, with investors demanding higher premiums to buy them instead of ultrasafe Treasury bonds. The premiums offered by high-quality corporate bonds have risen to 1.51 percentage points, up from 0.9 percentage point at the start of the year, according to Bloomberg index data. Premiums on junk-rated debt have risen even more. (Subscription required.)

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Consumer Spending Growth Slows in May​​​

Americans are still spending, but at a slower pace than a few months ago, a sign that the biggest part of the U.S. economy is beginning to moderate, the Washington Post reported. Overall consumer spending rose by 0.2 percent in May, down from 0.9 percent growth a month earlier, the Bureau of Economic Analysis (BEA) said Thursday. The report also showed that one measure of inflation remained steady, with overall prices up 6.3 percent in the last year. Consumer spending has so far been a bright spot in the U.S. economy, even as inflation hits 40-year highs. Although Americans say they’ve lost confidence in the economy — consumer sentiment measures have plunged to record lows — they have so far continued to pay for goods and services. But economists say there are signs that this is beginning to change, as higher interest rates and slowing savings rates take a toll on families’ budgets. Policymakers and economists are keeping close watch for indications that consumer spending — which makes up over two-thirds of the U.S. economy — may be losing steam. Some of that slowdown is by design, as the Federal Reserve is taking steps to cool the economy by aggressively raising interest rates. But there are also fears that a more substantial consumer pullback could tip the economy closer to a recession.

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Bankruptcy's Maine Event: Sessions on Regulatory Issues in Energy Restructurings, Health Care M&A, Lifecycle of a Subchapter V and More!​​​

Attendees will join a faculty comprised of 16 active and retired judges, top practitioners and leading academics at ABI’s 2022 Northeast Bankruptcy Conference and Consumer Forum, taking place July 14-17 at the Samoset Resort in Rockport, Maine. The conference is eligible for up to 10.25/12 hours of CLE/CPE, including 2.75/1.3 hours of ethics, and will again offer a separate three-day Consumer Forum at a reduced registration rate. Enjoy engaging panels and relaxing networking with fantastic coastal views. Register today!

Commentary: Student Loan Forgiveness Proposal Creates a Number of Political Challenges*​​​

The debate on student loan debt forgiveness is fraught with political landmines and sharp divides in public opinion, according to a Wall Street Journal commentary. The average student loan borrower leaves college with a debt of $28,400, according to the commentary. Those with only some college gained a lifetime earnings increase relative to someone who only completed high school that is 10 times the average debt incurred. On average, a graduate with a bachelor’s degree earns 40 times as much; a graduate with a master’s earns 53 times; and a doctoral graduate earns 80 times as much as the debt. Law and medical degree holders earn almost 100 times as much. Even as the share of the population with a college degree has tripled to 30.7% from 10.5% in 1967, the value of that degree has grown. The wage premium for having a college degree has grown to 96.2% today from 55.9% in 1967. While the current proposal from the Biden administration focuses on 45 million student borrowers, nearly 97 million other Americans over 25 with at least some college have paid off their loans, have parents or grandparents who sacrificed to cover their college costs by using their retirement savings, went to night school or junior college before going to a four-year college, worked during college, or sacrificed to win academic and athletic scholarships, according to the commentary. Another 82 million never went to college, so the commentary asks how these other 179 million Americans get their $10,000. Students aren’t the only people with government debt who will feel cheated, according to the commentary. Another $500 billion is owed for disaster assistance, other farm programs and emergency assistance. Workers, retirees, small businesses, family farms and corporations will owe the federal government $4.8 trillion in taxes this year alone and will likely feel cheated. (Subscription required.)

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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

U.S. Jobless Claims Totaled 231,000 Last Week​​​

The Department of Labor said that initial jobless claims ticked down last week as first-time filings for unemployment insurance in the U.S. totaled 231,000 for the week ended June 25, falling slightly from the prior week's upwardly revised 233,000, YahooFinance reported. The four-week moving average, which smooths out some weekly volatility in the data, was 231,750, an increase of 7,250 from the previous week's revised average, per the Labor Department. Claims filed last week held at near a five-month high but continue to show that the labor market remains hot, even as tighter monetary conditions and persistent inflation raises worries that unemployment may spike. Even after increases in the number of Americans filing for unemployment insurance in recent weeks, claims remain only slightly above pre-pandemic levels. Filings for unemployment insurance averaged about 218,000 per week throughout 2019.

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Bidding Wars Overheated the Homebuyer Market, Now They’re Coming for Renters​​​

Bidding wars have long been a staple of hot housing markets, where buyers compete with offers above the seller’s listing price. Now, these contests are becoming more commonplace in the rental market, the Wall Street Journal reported. Real estate agents from New York to Chicago and Atlanta say they see more people than ever making offers above asking to lease homes and apartments that they will never own. An increasing number of white-collar professionals — some of whom recently sold homes — are reluctant to buy because of record-high home prices, rising mortgage rates and limited supply. They are renting instead, helping to drive a frenzy for leased properties of all kinds, and helping fuel the trend of offering above-asking rents, real estate agents said. In some parts of Atlanta, so many people compete for the same homes that Re/Max agent Peter Beckford said he is renting out $3,500-a-month townhouses to couples making close to $1 million a year. “All of these applicants are extremely well-qualified,” Mr. Beckford said. A New York City panel last week approved rent increases of 3.25% starting in the fall at properties covered by the city’s rent-stabilization rules, the largest rise in nearly a decade. But for the city’s unregulated rental stock, which accounts for about half of all apartments there, it is open season on rent hikes. In popular high-end neighborhoods, more renters are making over-ask offers, real estate agents say. (Subscription required.)

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CFPB: Debt Collectors’ ‘Pay to Pay Fees’ Are ‘Often Illegal’​​​

Certain “junk” fees often levied by debt collectors are illegal under federal law, the Consumer Financial Protection Bureau (CFPB) said yesterday, CNBC.com reported. Debt collectors charge so-called “pay to pay” fees, which are also known as convenience fees, when consumers make a payment online or over the phone, according to the federal agency. These fees violate the Fair Debt Collection Practices Act when they aren’t “expressly authorized by the agreement creating the debt” or in instances when they’re not “expressly authorized by law,” the CFPB said in an advisory opinion. “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” CFPB Director Rohit Chopra said Wednesday in a written statement. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.” The Consumer Financial Protection Act transferred primary responsibility for the Fair Debt Collection Practices Act, including issuing regulations and ensuring compliance, to the CFPB in 2010, according to the agency announcement. The bureau issued a request in January asking consumers for input on hidden and excessive fees from a range of lenders. Last week, CFPB officials indicated they may tighten rules governing late fees charged by credit card companies, which the agency categorized as another type of “junk” fee.

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CEO Stock Sales Raise Questions About Insider Trading​​​

Prearranged trading plans, created by a regulation put in place two decades ago, have become a popular way for top executives and other company insiders to sell shares, the Wall Street Journal reported. Under the rule, corporate insiders can be shielded from allegations of trading on inside information as long as they sell using an automated trading plan set up when they didn’t know about any impending news. The rule allows these arranged trades to begin immediately. A Wall Street Journal analysis of 75,000 prearranged stock sales by corporate insiders, using a comprehensive compilation of the data, shows that about a fifth of them occurred within 60 trading days of a plan’s adoption. The timing in aggregate made the trades more profitable: On average, those trades preceded a downturn in share price more often than when insiders waited longer to trade, the analysis found. Collectively, insiders who sold within 60 days reaped $500 million more in profits than they would have if they had sold three months later, according to the analysis, which examined trades from 2016 through 2021 and adjusted returns to remove the effect of sector-wide moves in the market. For those who waited 120 days or more after adopting a plan, roughly half of them sold before a downturn and half sold before a stock upturn, suggesting that the sellers reaped no unusual gains after more time had passed. (Subscription required.)

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Latest Industry Viewpoints Segment Examines Intersection of Bankruptcy and Intellectual Property​​​

ABI Editor-at-Large Bill Rochelle speaks with Robert L. Eisenbach of Cooley LLP (San Francisco) about the intersection and intricacies of bankruptcy and intellectual property law. Eisenbach is a frequent speaker and author on the topic, and recently spoke on a panel at ABI's 2022 Annual Spring Meeting about intellectual property law. Click here to enjoy the discussion!

Bankruptcy Filing Trends Through First Half of 2022, What Lies Ahead to Be Examined on July 12 abiLIVE Webinar​​​

In partnership with Epiq, a key abiLIVE webinar on July 12 will feature experts looking at filing trends through June 30 and providing their thoughts on what could happen with bankruptcies moving forward. Speakers on the program include ABI President Hon. Kevin Carey (ret.) of Hogan Lovells (Philadelphia), Deirdre O’Connor of Epiq (New York) and ABI's Ed Flynn (Alexandria, Va.). Christopher Kruse of Epiq (San Francisco) will serve as moderator for the program. Click here for your complimentary registration.

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