18 April 2019 by jbchevrel
The healthcare sector has weighed on the US CDS market this week, especially since Tuesday. Noteworthy that this impacted both IG and HY segments of the market. Not just health insurance companies (UNH) but also hospitals. For instance, in the CDX IG index, CVS is +6 WTD (since Apr 12 close), UNH +7, CAH +9, and in the CDX HY index, THC +50 HCA +10. In the same time, the broader CDX IG was wider by less than a basis point… Today the move extended to medical devices, biotech and pharmaceutical, with PFE +4 (vs CDX unchanged). This relative move in CDS echoes stocks’. Indeed, the sub-index S&P 500 Health Care Equipment Index has lost -5.2% WTD, while in the same time lapse, the S&P 500 is almost exactly flat. The main reason is the concerns over Democrats’ ‘Medicare for all’ project, which would expand the US government-administered coverage to most of the population (from the current c60 million people) and potentially squeeze the businesses of not just US health insurers, but also hospitals and the rest of the ecosystem. That offset better than expected earnings from UNH on Tuesday. Indeed, they boosted FY adj EPS guidance mid-point (from $14.50 to $14.75) and they delivered better-than-expected Q1 adj EPS $3.73 vs $3.60 consensus. ‘Medicare for all’ is far from becoming law, but it is undoubtedly supported by some runners for Presidency, obviously on the Democrat side, including the man that President Trump calls ‘Crazy Bernie’.