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Real-Time Markets Perspectives

  • The latest U.S. jobs report showed the U.S. lost 140,000 payroll positions in December 2020, pushing the central bank further from its employment goals, though officials and private economists expect the U.S. economy to rebound this year as the COVID-19 vaccine is distributed
    • A Wall Street Journal survey this month projected the U.S. economy will grow 4.3% this year and the unemployment rate will drop from 6.7% in December 2020 to 5.3% by the end of 2021
  • Federal Reserve Chairman, Jerome Powell, affirmed his commitment to keeping interest rates low for the foreseeable future in a recent Q&A session, even as he expressed hope for a strong economic recovery
    • The benchmark short-term borrowing rate is anchored near zero percent, as the Fed continues to buy at least $120 billion in bonds each month, with core inflation at ~1.4%, well below the Fed’s 2% target
  • Amid a massive influx of cash from fiscal and monetary authorities, total currency in circulation soared to $2.1 trillion by the end of 2020
    • This is a 12% gain from the year prior and the biggest one-year percentage increase since 1945, as the U.S. was coming out of WWII

M&A Markets

  • U.S. private equity (PE) dealmaking activity in 2020 was volatile, with the year starting out at a fervent pace in Q1 before freezing in Q2, and then finally rebounding in the second half
    • U.S. PE deal activity saw 5,309 deals close in 2020 for a total value of $708 billion, a YoY decrease of 3.4% and 7.3%, respectively
      • This marks the first time since 2009 that both dealmaking value and count diminished
  • PE-backed exits fared better than expected, with the total deal values increasing in 2020 despite volume falling
    • PE firms recorded 952 exits for a total of $378 billion of value, a YoY decrease of 14% and an increase of 6%, respectively
  • Public listings were the preferred route for the largest exits in 2020, with eight of the 10 largest exits being public listings
    • Despite public listings and SPACs having a notable year, the COVID-19 pandemic severely impacted sponsor-to-sponsor exits in 2020
      • 2020 saw PE exits to other PEs total 390 transactions worth $109 billion, versus 618 transactions worth $188 billion in 2019
    • Add-on acquisitions in 2020 accounted for 73% of all buyouts, an all-time high replacing the previous record of 69% achieved in 2019
  • While a myriad of PEs put sale processes on hold in March and April of 2020, many of those same firms restarted the processes in late Q3 and into Q4 2020 as markets recovered
  • Dealmaking confidence continues to improve with lending conditions remaining favorable
    • Improvement in both the global and U.S. M&A markets is anticipated to continue through the first half of 2021

Debt Capital Markets

  • In the first week of 2021, the leveraged loan market had approximately $7 billion worth of loans launched across 10 transactions
    • M&A activity continues to pick up on the forward calendar, with $13 billion currently in the pipeline
    • Lower-rated issuers have entered into the market seeking pricing reductions as the secondary market remains strong
  • U.S. CLO issuance is expected to reach $100 billion in 2021, a 15% YoY increase, combined with less severe retail loan fund outflows, this should generate enough demand to absorb leveraged loan supply
  • High yield bond issuance volume in 2020 was $450 billion, a 57% YoY increase, surpassing the prior record set in 2013 of $399 billion
    • A substantial driver for the record issuance was high yield fund inflows into mutual funds and ETFs
      • Net inflows into high yield totaled a record $44 billion in 2020
  • The investment grade bond market also set a record in 2020 for total volume of $1.81 trillion, finishing 61% above 2019 volume of $1.13 trillion, and over 65% above average 2020 estimates of $1.09 trillion
    • Issuance started off strong in the first week of 2021, with $55 billion pricing across 30 transactions
    • Average estimates for 2021 and January 2021 currently sit at $1.2 trillion and $142 billion, respectively

Equity Capital Markets

  • 2020 was a record year for equity issuance, with IPO and follow-on offering transactions up YoY, as well as IPO returns being the highest in 20 years
  • New issue market outlook going into 2021 is strong given the current issuance momentum, supportive market valuations, increased corporate leverage and an improving M&A environment

Sources: CNBC, WSJ, KeyBanc Capital Markets

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity