5th March 2019

No respite in corporate primary

iTraxx Main

60.8bp, -0.3bp

iTraxx X-Over

275bp, +0.4bp

🇩🇪 10 Yr Bund

0.16%, unchanged

iBoxx Corp IG

B+144.5bp, unchanged

iBoxx Corp HY

B+440bp, -2.6bp

🇺🇸 10 Yr US T-Bond

2.74%, +1bp

🇬🇧 FTSE 100 [wp_live_scraper id=”17″], [wp_live_scraper id=”24″] 🇩🇪 DAX [wp_live_scraper id=”19″], [wp_live_scraper id=”25″] 🇺🇸 S&P 500 [wp_live_scraper id=”21″], [wp_live_scraper id=”26″]

Risk market hold their nerve…

A forced break from the recent upward momentum in the markets came courtesy of the (not unexpected) news that China officially forecast slowing growth this year. No longer ‘around 6.5%’ – as they reduced their expectation to between 6 – 6.5% – was enough to have us take a breather. That came as official data saw the Chinese economy record the slowest service growth in 4 months in February and while the manufacturing sector offered some improvement it is still in contraction territory.

Add in Trump revoking India and Turkey’s preferential trade status’ and we are reminded that this year’s gains in risk assets come with warnings as to their sustainability.  So far, we view them as having given us a buffer in which to defend a positive returns result come year end (in credit anyway).

Primary didn’t exactly clear the decks for Greece to return to the markets with its anticipated 10-year deal. It was the headline deal, but we had some equally interesting issues in the corporate market. Telefonica issued a hybrid and senior tranche deals, Erste Group Bank took CoCo funding, Heathrow Funding took on euro-denominated debt while HSBC issued in sterling. So, enough in that mix to keep the corporate bond market investor busy during the session.

Elsewhere, markets managed to hold their nerve on the back of that aforementioned data stream from China, with few willing to take any additional strategic decisions ahead of the ECB press conference on Thursday. We had very moderate levels of weakness in equities, while even government bond markets were slightly better offered. Credit secondary was treading water with the focus on the handful of juicer, higher yielding issues as mentioned. This is where the action is right now.

Yield, oh yes!

The deal flow did just the job for investors as higher beta issuance graced the market. We’re seeing a real solid demand for deals which now has an air of consistency about it, while borrowers are stepping up to the plate to help satiate investor interest in the corporate market. And the higher the yield, the better – that is clear. That particular demand dynamic might gain an additional boost, depending on Draghi’s musings come Thursday’s ECB press conference.

Erste Group became the latest financial borrower to issue on the AT1 market, with investors undeterred by that decision by Santander last month not to call its AT1 deal. The borrower issued €500m in a perpNC6.6 structure paying 5.125% which was 37.5bp inside the opening mumble off order books exceeding €1.6bn.

The other financial issue in the session came courtesy of HSBC in sterling, with the borrower taking £1bn in a long 9NC8 deal at G+190bp, and 15bp inside the opening guidance.

Deals for the Spanish multinational broadband and telecommunications provider

We finally broke a 14-tranche run of deals which came from US domiciled IG non-financial borrowers. And we did it in style. As such, the stage was dominated by Telefonica. The Spanish telecoms group issued €1bn in a 10-year, priced at midswaps+110bp. Order books topped €3.5bn and allowed the leads to reduce final pricing by 25bp versus the initial guidance.

The Spanish borrower added €1.3bn in a perpNC6 hybrid structure priced to yield 4.375% which was 25bp inside the initial guidance. The order book came in at around €3bn and the issue was rated high double-B.

Heathrow Funding was the other corporate borrower lifting €650m at midswaps+95bp (-30bp versus IPT), generating interest of €2.7bn for the deal.

And then there was Greece. The sovereign took €2.5bn in a 10-year deal which cost it 3.90%. That was 22.5bp inside the initial guidance and made possible off an order book which came in at a touch under €12bn.

Holding steady

The Fed’s Eric Rosengren might have become the latest Reserve official to put his weight behind a pause on the rate hike front, but it’s only because we’re seeing a material slowdown in the US economy. It looks as if 2%  GDP growth is going be a result for the year, especially given the weakness we’re seeing in Q1. Anyway, that news didn’t alter anything in terms of the markets moving out of their established narrow, rangebound limits.

As it happened, equities in Europe managed to claw out of the red to record small gains – helped at the time by US equities recovering from their earlier losses. The Dax managed to close 0.25% higher and the FTSE +0.7%.

In rates, there was also little doing. That meant the 10-year Bund yield closed unchanged at 0.16%, the 10-year US Treasury was yielding 2.74% (+1bp) and Gilts closed to 1.28% (+1bp).

In credit, indices was barely changed, with iTraxx Main a touch lower at 60.8bp (-0.3bp) and X-Over at 275bp (+0.4bp) through a rather lacklustre session.

As for secondary cash, there was little happening. The euro and sterling IG markets closed unchanged, with the iBoxx indices left at at B+144.5bp and G+165.9bp, respectively, which was reasonably expected given the run this market has had lately. We had moderate weakness the CoCo market which was perhaps a touch better offered, if anything – but nothing to do with the Erste offering in the session.

And finally, the Telefonica hybrid deal falls into the HY indices, but would have predominately been placed with IG investors. Still, the high yield market’s issuance year to date is up at €7.7bn – and we are still looking for the total to get to around the €45bn mark (versus €62bn in 2018). Anyway, the secondary market didn’t proffer much in the session and we closed a touch tighter, leaving the iBoxx HY cash index at B+440bp (-2.6bp).

Have a good day.

Suki Mann

A 30+ year veteran of the European corporate bond markets and in his role as Credit Strategist, Dr Mann has been ranked number one in the Euromoney Investor Survey eight times in ten years. Previously with Societe Generale and UBS, he now shares views of events in the corporate bond market exclusively here on CreditMarketDaily.com.