13th January 2016

Another false dawn, I’m afraid

FTSE 100
5,929, +57
9,985, +160
S&P 500
1,939, +15
iTraxx Main
86bp, unch
iTraxx X-Over Index
353bp, +2bp
10 Yr Bund
iBoxx Corp IG
B+163bp, +2bp 
iBoxx Corp HY Index
B+554bp, +6bp
10 Yr US T-Bond

European stocks rally, but there’s little else to cheer… The Chinese stock market stopped falling and closed out flat. Heavy intervention saw a firmer fix on the yuan. However, look across, and we we saw Japanese stocks off almost 3%. Oil traded at below $30 at one stage (!) and it will go through it again – while in our view, the next stop will be $25 on the way to $20. Why not? They’re a nice couple of round numbers for the speculators to aim for. Easy money. It was a case of “good morning!” Well, the day did improve thereafter for some. Stocks were up, government bond yields unchanged in Europe (materially lower in the US), credit was weaker while oil bounced off the early lows – only to trudge into the red again. Alcoa’s earnings after the close of business on Monday night were good and the company’s post-earnings statement suggested 2016 would be a decent one for them. This kept aluminium prices propped up, but other base metals took a hit. Other news took in some quite poor UK manufacturing (-0.4 MoM) and industrial (-0.7 MoM) production figures for November as low oil prices and a strong sterling (back then) began to bite. The primary bond market met a slew of issuance, but most of it was covered bonds and SSAs with a couple of senior bank deals. There was nothing in the non-financial corporate sector. Another good day for stocks on Wednesday and we might get a deal or two emerge. The only people concerned might be syndicates looking to get some early fees on their books and investors looking for primary market activity as a harbinger for better times ahead. Corporates can sit tight, parked on their high levels of booty, amassed over the past few years.

Oil just can’t hold on… We all have more than a watchful eye on the price of a barrel of oil, and although it traded in the black (so to say) in a +1-2% complex for most of the session, it couldn’t hang on and closed down by over 2%. Having stared and then smooched 2-handle level in the early and then later skirmishes, respectively, we ended at $30.80 (Brent) with WTI at $30.50 (-2.90%) . The earlier better levels did however offer much relief, and equities used the move as a platform to kick on. European stocks wasted little time to trade up into it, and we recovered by over 1.5% across most equity markets (but closed off the day’s highs). That didn’t follow through into better sentiment in corporate credit and although flow and volumes remain low (and will for a good while yet), corporate bond spreads managed a small widening. The Markit iBoxx non-financial corporate index closed 2bp wider at B+163bp and the HY index was also wider at B+554bp.  In the synthetic space, iTraxx Main ended at 86bp (unch) and X-Over at 353bp (+2bp). Bunds closed unchanged to slightly better bid, leaving the 2-year yield at -0.39% and the 10-year at 0.53%.

Still little to get excited about in primary… Mediobanca and RBC furnished us with a couple of simple senior deals, while Intesa became the first issuer this year with an AT1 transaction (priced to yield 7%, with a 5.125% CET1 trigger). We now just lack a non-financial corporate hybrid and a high yield non-financial deal to complete the full set of corporate bond structures. The former is more likely sooner than is the latter. And overall, just Eur3.75bn of non-financial issuance (from two borrowers), around Eur4.5bn of senior supply and just one borrower for each of the T2 and CoCo structures leaves the cupboard for the opening 12-days of 2016 looking a little bare. Nestlé was the sole non-financial corporate, but it was just a small tap in sterling.

US stocks have closed up, but there’s little conviction in the better levels. We are clutching at straws. Try and have 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.