Aurelia Butler

WASHINGTON (Reuters) – The $430 billion climate change, healthcare and tax bill that passed the U.S. Congress on Friday aims to help reduce the carbon emissions that drive climate change and lower medical costs for older Americans.President Joe Biden’s Democrats hope the bill, now passed by both houses of Congress, will boost their chances in the Nov. 8 midterm elections, when Republicans are favored to recapture the majority in at least one chamber of Congress.The package, called the Inflation Reduction Act, is a dramatically scaled-back version of a prior bill backed by Biden that was blocked by maverick Senate Democrats Joe Manchin and Kyrsten Sinema as too expensive.The bill will go to Biden to be signed into law.“Today is really a glorious day for us. We send to the president’s desk a monumental bill that will be truly for the people,” House Speaker Nancy Pelosi, the chamber’s top Democrat, told reporters on Friday ahead of the vote.Republicans blasted the bill as a spending “wish list” that they argued would hurt an economy weighed down by inflation, saying it would kill jobs, raise energy costs and undermine growth at a time when the economy is facing a potential recession.”The Democrats’ most recent reckless tax and spending spree suffers from a serious case of policy whiplash,” said Republican Senator Chuck Grassley. “The last thing businesses and families need right now are tax hikes and a rash of poorly vetted policies creating even more confusion and uncertainty in the economy.”About half of Americans – some 49% – support the bill, including 69% of Democrats and 34% of Republicans, according to a Reuters/Ipsos poll conducted on Aug. 3 and 4. The most popular element of the bill is giving Medicare for older and disabled Americans the power to negotiate drug prices, which 71% of respondents support, including 68% of Republicans.Economists, who say the legislation could help the Federal Reserve battle inflation, do not expect a sizeable impact on the economy in coming months. CLIMATE FOCUSWith $370 billion in climate-focused spending, it was the most consequential climate change bill passed by Congress.The bill offers businesses and families billions in incentives to encourage purchases of electric vehicles and energy-efficient appliances, as well as to spur new investments in wind and solar power that would double the amount of new, clean electricity-generating capacity coming online in the United States by 2024, according to modeling by the Repeat Project at Princeton University.That would help put the United States on course to meet its pledge to slash its greenhouse gas emissions in half by 2030 below 2005 levels, made at last year’s Glasgow climate summit.While environmental groups largely embraced the bill, they noted that compromises secured by Manchin, who represents coal-producing West Virginia, would prolong U.S. use of fossil fuels.Those provisions include rules that would only allow the federal government to authorize new wind and solar energy developments on federal land when it is also auctioning rights to drill for oil and natural gas.DRUG COSTS The legislation would lower drug costs for the government, employers and patients, said Juliette Cubanski, deputy director of the Medicare program at the Kaiser Family Foundation.    “Perhaps the biggest effect would be for people with prescription drug coverage through Medicare,” she said.    A key change is the provision allowing the federal Medicare health plan to negotiate lower prescription drug prices.    Negotiated prices for 10 of the costliest drugs for Medicare would apply starting in 2026, with that number rising until it caps at 20 a year in 2029.    The nonpartisan Congressional Budget Office estimates Medicare would save $101.8 billion over 10 years by negotiating drug prices.    The provision also introduces a $2,000 annual cap on out-of-pocket costs for the elderly through the Medicare program. The pharmaceutical industry says price negotiation will stifle innovation. TAX PROVISIONSThe bill also imposes a new excise tax on stock buybacks, a late change after Sinema raised objections over another provision that would have imposed new levies on carried interest, currently a tax loophole for hedge fund and private equity financiers. The provision was dropped.The excise tax is expected to raise an additional $70 billion in tax revenue per year, lawmakers said. That is more than the carried interest provision had been forecast to raise.A report by the Congressional Budget Office released prior to that last change estimated the measure would reduce the federal deficit by a net $101.5 billion over the next decade.That was about one-third of the $300 billion in deficit reduction predicted by Senate Democrats, but excluded a projected $204 billion revenue gain from increased Internal Revenue Service enforcement. The Congressional Budget Office has not released a report on the final version of the bill. More

Earlier this week, Ukraine’s overseas creditors backed the country’s request for a two-year freeze on payments on almost $20 billion in international bonds. The move will save Ukraine some $6 billion on payments according to Prime Minister Denys Shmyhal.S&P lowered Ukraine’s foreign currency rating to “SD/SD” from “CC/C.””Given the announced terms and conditions of the restructuring, and in line with our criteria, we view the transaction as distressed and tantamount to default,” S&P said.Fitch cut the country’s long-term foreign currency rating to “RD” from “C,” as it deems the deferral of debt payments as a completion of a distressed debt-exchange.S&P also said the macroeconomic and fiscal stress stemming from Russia’s invasion of Ukraine may weaken the Ukrainian government’s ability to stay current on its local currency debt and lowered the Eastern European country’s local currency rating to “CCC-plus/C” from “B-minus/B”.Battered by Russia’s invasion, which started on Feb. 24, Ukraine faces a 35%-45% economic contraction in 2022 and a monthly fiscal shortfall of $5 billion. More

Swedish manufacturer Volvo AB surprised investors this week by borrowing €500mn — a rare deal in Europe’s parched corporate bond markets that are pin-drop quiet even by summertime standards.Investors placed €3.2bn worth of orders for the deal, from the financing arm of the truck and bus maker, whose bond deal was one of just a handful to hit the market in several weeks. The amount raised in European corporate bonds so far this year has fallen to the lowest level in nearly 20 years, down 18 per cent compared to the same time last year. European governments have raised 47 per cent less than the same period last year, according to Refinitiv data.Equity markets are even more muted. The amount raised from companies hitting stock markets for the first time has plunged by 92 per cent compared to last year, Refinitiv data shows.The slowdown shows how wobbly markets, a dark economic cloud from Russia and rapidly rising interest rates are all making it tougher for companies to tap markets that have been generous sources of funds for years.“Primary markets have been quite seized up because of the volatility [and] liquidity has been very challenged,” said Snigdha Singh, co-head of European fixed income, currencies and commodities trading at Bank of America. Years of low interest rates, exacerbated by the coronavirus pandemic, encouraged a glut of corporate and government debt deals as executives raised new funds and pushed existing debt repayment obligations further in to the future.But with energy price shocks and global supply chain issues, global central banks’ priorities have shifted from stimulating inflation to hosing it down. The European Central Bank has halted its decade-long bond-buying programme which had acted as a safety net and provided comfort to markets since the financial crisis. The bank has now lifted interest rates to zero, ending a decade of negative rates and following the US Federal Reserve in increasing borrowing costs. As the ECB has removed its safety net and recession looms across Europe, investors have shied away from funding riskier corners of the market. The amount raised by the lowest-rated, high-yield companies has plunged 79 per cent so far this year compared to the same period in 2021, according to Refinitiv. “We had a pretty substantial pipeline late spring [but said] ‘let’s put down the pen’,” said Tomas Lundquist, head of European corporate debt capital markets at Citi, adding that “in May and the beginning of June, the confidence level that we had to get the best possible pricing wasn’t that high”.Additionally, the rush of bond market activity over the past two pandemic years meant that “most companies had already termed out debt and didn’t have imminent funding needs”, he said.Volvo’s move was more opportunistic. Lundquist at Citi, which led the deal, said the truckmaker’s timing was “very good” after US inflation data was somewhat tamer than investors had feared and that the company “reacted very quickly when they saw this attractive window”.That has underscored bankers’ reliance on central bank policy to underpin activity for the rest of the year. Investors and analysts are trying to navigate the uncertain outlook using new data releases, aiming to paint a picture of whether and when inflation will cool and to forecast the trajectory of major central banks’ interest rate changes. US inflation rose by 8.5 per cent year on year in July, a slower increase compared with June and a lower figure than economists had anticipated — raising hopes that the pace of price rises in the world’s biggest economy has peaked. The data had been closely watched by investors searching for clues about how far the Fed will raise interest rates to curb rapid price growth.Markets feel “on a slightly firmer footing” now compared to July, one banker said, “with some more stability and even some new corporate deals in Europe [in August]. There is more optimism.”Equity markets may be slower to rebound. The valuation of companies that listed in the market frenzy over the past two years have been slashed. For example, food delivery service Deliveroo’s valuation has plunged to about £1.7bn from more than £5bn when it listed in London last year. That has put off fund managers.“Companies that were contemplating [listing] are taking time to see how things settle, and sellers may also need to adjust valuation expectations,” said Tom Johnson, co-head of European capital markets at Barclays. “After a market fall there is always a bit of ‘who wants to be the first to step off the pavement?’ A lot of issuers would prefer to see data points from other people first.” Debt bankers remain more positive and say they are encouraged by recent bond market rebounds. Total returns from Europe’s riskiest debt is down almost 10 per cent this year, but returns have recovered by over 6 per cent since a low in June, according to ICE Bank of America data. An index tracking higher grade debt has also recovered by over 5 per cent since a June trough.

Bankers are hopeful that a couple of successful deals might encourage more to jump in.“We should not underestimate the herd mentality,” said Josh Presley, managing director at Credit Suisse. “One good deal will open the door for others to follow.”This article has been amended since publication to reflect that the bond deal involves Volvo AB, rather than Volvo Cars More