3rd April 2019

April flowers

iTraxx Main

61bp, -1.7bp

iTraxx X-Over

252.9bp, -6bp

🇩🇪 10 Yr Bund

0%, +5bp

iBoxx Corp IG

B+134.7bp, -2bp

iBoxx Corp HY

B+415.2bp, -8bp

🇺🇸 10 Yr US T-Bond

2.51%, +3bp

🇬🇧 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″]

Markets roar ahead…

Well, that had nothing to do with the prospect of a soft Brexit or no Brexit at all, but rather everything to do with hopes that the US and China might come to a trade agreement.

Whatever, the primary sluice gates opened and the deals gushed through taking in borrowers from across the complete corporate bond spectrum in the busiest session in months. In a ‘proper’ risk-on session, equities pushed higher, rates sold off hard as if the economic crisis has come to an abrupt end, and credit spreads continued to tighten. Borrowers were spurred on by the very upbeat tone across risk markets in the session, although receptivity to deals over the past quarter has been excellent with the window open right through.

Anyway, we had IG non-financial issues, senior (non-preferred) issuance, much welcomed/needed high yield borrowers and subordinated financial debt. Things continue to look rosy in credit markets.

The sharp push higher in yields as the underlying sells off will start to chip away at returns but, fortunately, we have plenty in the tank and can give some back. For instance, IG credit before Wednesday’s close had delivered 3.4% for the year and we would think that maintaining 2.5%+ for the first four months of 2019 would be a good result. Spreads will need to maintain a positive momentum – which by all accounts appears a reasonable expectation.

However, any spread rally will be checked by a sharp equity sell-off likely predicated on some sort of event-risk (and not just another postponement or otherwise of US/Sino trade talks), or by another slew of deals in subsequent sessions leaving investors with a feeling of indigestion.

We are going to need issuance levels to slow at some point, deals properly absorbed and some performance to help the mood stay constructive and receptive.

As ever, that is unlikely going to be the case because it is always every borrower for themselves. So wait for issuance to eventually hit a brick wall as that indigestion sets in.

New issue market deluge

The IG non-financial borrowers in the session took in Terna’s €500m green bond priced at midswaps+78bp in a 7-year maturity. That was 27bp inside the opening price talk and made possible off a book of €3.7bn. Banque PSA also issued €500m in a 3-year effort priced at midswaps+65bp which was 30bp inside the initial guidance with the book up at an impressive €4.2bn.

Orange came up with a juicy deal

The pick of the bunch in this sector was the hybrid deal from Orange SA – the third in under two weeks, with the telecoms group printing €1bn at 2.5% in a PNC6 structure. The book was up at a massive €7.5bn and final costs 50bp inside the initial talk.

In senior financials, UBI Banca lifted €500m in senior non-preferred format at midswaps+150bp (-20bp versus IPT), on a 3x subscribed book. KBC Group was in for €500m in a 6-year maturity offering at midswaps+60bp (-20bp versus IPT, €2bn book).  Citigroup went for 10-year funding at midswaps+82bp (-13bp versus IPT) for €1.35bn.

Other financials deals included investment holding group Criteria Caixa which issued €600m in a 5-year at midswaps+145bp, where a €2.75bn book saw final pricing 30bp inside the opening level. Aareal Bank issued €400m in a 5-year senior preferred deal at midswaps+43bp. Belgian insurer AGEAS SA/NV plumped for €500m in 30NC10 Tier 2 funding at midswaps+280bp managing an impressive €4bn book for their efforts.

In the high yield market, Adler Real Estate issued €400m in a 3-year priced to yield 1.5% which was 50bp inside the initial talk, with a book up at €2.1bn. Unrated, but we think implied high yield, Austrian group Voestelpine AG issued €500m in a 7-year maturity at midswaps+155bp which was only 10bp inside IPT (books at €700m). SGL Carbon’s deal was finally on the screens with €250m in a 5.5-year senior secured offering priced to yield 4.625%.

The other borrower in high yield markets was Loxam which issued in dual tranche format, with €300m in a senior secured deal costing 2.875%, and a further €200m in an 8NC3 senior subordinated deal yielding 4.5%.

Risk-on, what else?

The newsflow focused largely on the latest developments in Westminster, while the data had UK services sector PMI contracting in March – blamed no doubt on Brexit uncertainty. However, the French service sector also contracted in the month, although the bright spots were Italy, Germany and Spain.

That aside, it was proper risk-on territory during the session. Even Bitcoin managed to hold $5k per coin. The Dax added 1.7%, the FTSE just 0.4% but had to contend with a rallying currency and the US markets were up by around 0.5% at the time of writing.

The biggest moves came in rate markets. The 10-year Bund yield rose to 0% which was a hike of 5bp on the day, while the equivalent benchmark Gilt yield those 9bp to 1.09%. The 10-year US Treasury yield was up at 2.51% (+3bp).

The synthetic credit markets saw protection costs drop with iTraxx Main at 61bp (-1.7bp) and X-Over 6bp lower at 252.9bp.

In cash, we continued to squeeze even as the focus was on the primary markets. In all, it left the iBoxx IG cash index at B+134.7bp which was a good 2bp tightening in the session, while the HY market also squeezed and was left at B+415.2bp (-8bp).

This column is back on Monday, barring any major events on Thursday. 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.