7th January 2019

Bringin’ It Back

iTraxx Main

88.5bp, -1.1bp

iTraxx X-Over

357.3bp, -8.1bp

🇩🇪 10 Yr Bund

0.22%, +1bp

iBoxx Corp IG

B+179.9bp, +2.1bp

iBoxx Corp HY

B+451bp, -5bp

🇺🇸 10 Yr US T-Bond

2.68%, +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″]

Taking care of business…

There was no shortage of borrowers looking to get deals away just as the going seemed to have improved following the huge rally in equities at the end off last week. They came out the gates gushing, with senior bank deals, IG non-financial corporates and a slew of covered bond and SSA transactions. The deals went up on the screens just as data for German factory orders showed a drop of 1% in November versus October (expectations was for -0.6%) and a Sentix survey suggested that investor expectations for Germany in 2019 were the gloomiest since 2012. Tuesday primary market activity will likely be a different story.

The floodgates have finally opened

The was a modest retreat in equities in Europe and the slightly better bid for rates faded into the session’s close. Overall, we could probably think of it as being a relatively stable day given some of the moves of late, but we’re going to need to see a much-improved tone before the credit market will be receptive for much more on the primary front. There is plenty to get done.

The high yield market is stuck for the moment, and the best that we could hope for might be a blue chip industrial from the periphery with a high double-like rated issue to get us a deal away from this category. The bog-standard high yield transaction might elude us for a while yet.

Otherwise, we have a little more to think about in terms of how negative we might wish to get. The going is not great, and the current weakness in macrocell will take time to play out. Sentiment is fickle and might change IF the US/China trade talks yield something a little more hopeful in terms of a deal being struck soon. And then we have the Fed with Powell already rowing back on his hawkishness. That could translate into boosting EM currencies, activity in that region and improvement in sentiment will flow through into markets everywhere.

We prefer to remain cautious. Macro dominates, of course, but domestic politics in any number of countries could spring nasty surprises with several situations continuing to simmer. The immediate danger is the Brexit/EU impasse, and we’re all sure to be on tenterhooks this week and next – if not until the end of March.

Corporate primary delivers

The deals that matter for the corporate bond market took in 5 borrowers. For the IG non-financial sector it was Elia System and Veolia Environnement. Elia plumped for 7-year funding for €500m with final pricing midswaps+93bp which was 17bp inside the opening price talk off a €2bn book. Veolia Environnement landed €750m at midswaps+70bp versus opening talk of midswaps+85bp with a book also at around €1.5bn at the final spread.

So a week into the New Year and total issuance for the period comes in at €2.5bn, for IG non-financials. Anything close to €20bn for the month would be a very good result.

In senior financials, the account for 2019 for the sector was opened with a trio of deals. ING Groep took €1bn in HoldCo funding at midswaps+170bp for a 7-year maturity (-10bp versus IPT). They were followed by BFCM which issued €1.25bn in a long 4-year senior preferred offering at midswaps+80bp (-10bp versus IPT). And finally, Societe Generale came in 2-year floater format at Euribor+37bp for €1.5bn, also in a senior preferred deal.

Judging by the recent issuance from the plain vanilla corporate bond market, that was a decent result for a Monday for any time of the year. Lest we add, Slovenia (€1.5bn, 10-year, midswaps+40bp) was in the market for the first sovereign offering of the year, the EFSF lifted €3bn and there was a whole host of covered bond deals.

Steady start

So we closed with solid US equities helping to stem losses in Europe. US stocks were 1% or more higher (as at the time of writing), leaving most European markets in the red by only a small margin.

In the rate market, we closed with the 10-year Gilt yield 2bp lower at 1.25%, but the Bund yield in the same maturity was a touch higher at 0.22% (+1bp) as was the equivalent US Treasury, yielding 2.68% (+2bp).

As for credit, the iTraxx synthetic indices edged lower to 87.4bp (-1.1bp) for Main while X-Over dropped to 349.2bp (-8.1bp), the latter representing a couple of days’ good work following the 16bp fall in the cost of X-Over protection on Friday.

The cash market was quiet in secondary, but there is no kidding corporate bond market investors. They’re still apprehensive and despite that stability in equities and recovery in primary and the synthetic indices, we moved wider by another 2.1bp on the IG cash index, left at B+177.9bp. That leaves IG credit already 7.5bp wider in this year’s opening few sessions.

Higher beta risk was again stable, not even the AT1 market leaked wider as it exhibited some stability and closed unchanged. In the high yield market, it was a slightly better picture, and that meant the cash index closed 5bp tighter at B+451bp.

Have a good day.

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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.