7th October 2019

🤳 Alexander the Great

iTraxx Main

58bp, unchanged

iTraxx X-Over

253.5bp, +3.5bp

🇩🇪 10 Yr Bund

-0.58%, +1bp

iBoxx Corp IG

B+125.3bp, unchanged

iBoxx Corp HY

B+431bp, +3bp

🇺🇸 10 Yr US T-Bond

1.54%, +2bp

🇬🇧 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″]

Yes sir, no sir, three bags…

There are just too many developing situations for the markets to make a move in any decisive direction. They are currently treading very carefully – understandably – and it all seems rather tedious. After some big losses last week, European equities did their best to push higher, rates were flat/better offered for choice, even after a larger than expected drop in German factory orders for August (the economy in recession will be confirmed), while credit primary was almost oblivious to it all as deals populated the screens. This could all be a theme for this week.

New deals in the corporate bond market can sneak through – and are expected to, given that the primary market is effectively one step away from the moderate levels of intraday volatility we might be seeing in equities, as those headlines emerge. We observe that the demand for paper is still fairly solid.

Apart from that, there is very little to get excited about. Equities trade in narrow ranges, with rates doing little even as macro data continues to suggest we’re in recession territory, while secondary credit does nothing but perhaps edge wider in higher beta sectors.

End of the affair(s)?

Credit primary is throwing out a few deals, though, but for once they seem inconsequential against the potential for event risk elsewhere. That Chinese trade mission to Washington is the markets’ most pressing concern and each and every headline seems to elicit a response (in equities, anyway). The deterioration in the Hong Kong situation now threatens also to result in wider political reaction and add to the sense of crisis, and then we have heightening uncertainty around Brexit/the Scottish courts/Boris Johnson (his time as Mayor).

Overall, the markets are managing to steer a path through the various risks which have been with us for a while now. Anyway, We think that fixed income markets are going to manage to hang on to the super performance that they have clipped this year. There’s little chance of a material reversal in safe haven valuations and we think that they ought to be underpinned once the ECB resumes purchases come the beginning of November.

IG non-financials make a comeback

Eni SpA issued €750m in a 15-year at midswaps+97bp with 23bp taken off the initial pricing off a €1.6bn book. France’s Suez issued €700m in a 12-year at midswaps+55bp which was 25bp inside the initial guidance, with order books pitched in excess of €2.2bn.

The utility issuance rounded off with Iren, with the Italian group going green for €500m in a 10-year at midswaps+110bp – and some 30bp inside the initial guidance (books €2.1bn). Industrial investment holding group (for the Agnelli’s) Exor NV issued €300m in a 15-year at midswaps+170bp.

That flurry of deals took the year to date IG non-financial volume to a well over €254bn and we are now just €31bn away from this year being a record for supply, needing to pass the €285bn issued in 2009.

Brexit volatility deterred Bank of Ireland from pulling the trigger a few ago on a Tier 2 issue, and while those same concerns still exist – or are even more elevated –  they went for it again. Well, they paid up a little more for the privilege. The €300m 10NC5 issue priced at midswaps+280bp (-20bp versus IPT) off a book in excess of €1bn.

Alternative investment group, Tikehau Capital issued €500m in a 7-year at midswaps+260bp. That was -10bp versus IPT, but they pushed it a little too far with books of just €675m and the deal increased from €300m.

All the signs are there

So European equities were in the black, largely playing catch-up to the rally in US stocks last Friday. As at the time of writing, US equities were dipping in and out of the red/black.

Germany: Factory orders slump

Rates were better bid at the open, but faded as the session progressed. The 10-year Gilt yield rose to 0.46% (+2bp) as retail sales declined to their worst ever level for a September.

Bunds held steady (10-year at -0.58%, +1bp) even as German factory orders slumped 6.7% in August year on year -0.6% month on month), and all but confirms a technical recession for the economy. The economy shrank by 0.1% in Q2.

Credit index was essentially unchanged with Main at 58bp and X-Over at 253.5bp (+3.5bp), in an uneventful session across the board for credit.

In cash, for the third session a row, the IG market closed completely unchanged and the iBoxx index left at B+125.3bp with the same going for the AT1 market. That all serves to highlight the lack of activity and volumes going through. In high yield, pretty much the same, leaving the index at B+431bp (+3bp).

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.