8th March 2017

Busy, busy

FTSE 100
7,339, -11
11,966, +7
S&P 500
2,368, -7
iTraxx Main
71bp, +0.25bp
iTraxx X-Over Index
281bp, +2bp
10 Yr Bund
0.32%, -2bp
iBoxx Corp IG
B+133.25bp, -0.25bp 
iBoxx Corp HY Index
B+364.75bp, +4.75bp
10 Yr US T-Bond
2.51%, +3bp

Deal flow keeps boredom at bay

It started off looking like a ‘Christmas has come early’ session – lots of small-sized deals. But such is the demand for almost anything primary, issuers were not shy in coming forward and increasing deals to satiate the considerable level of investor interest. So we ended up having a fill-your-boots session.

Priceline Group: €1bn in a 5-year deal was the largest of the day

There were deals galore with SSAs taking much of the attention, but in the corporate bond market investors had enough to occupy themselves with amid a spate of smaller transactions being upsized while interspersed with the odd bigger one.

We counted six deals taking in short-dated floater issues, two fixed €500m offerings and a quick-fire €650m deal, and then that €1bn transaction all in the IG non-financial space. We had a small Tier 2 deal, a sterling IG non-financial corporate and a spate of SSA deals taking in the likes of Italy and the ESM. All that released a little pressure on the bulging pipeline – albeit only temporarily, because several fresh mandates were awarded in the session.

The OECD did its best to put a dampener on the current ebullience and expectations around global growth expectations, with a warning shot that the organisation wasn’t convinced that we’re in the throes of a major recovery in the global economy. The Eurozone grew at a decent 1.7% in 2016, and German factory orders dropped by a massively surprising 7.4% in January and the worst monthly drop since 2009.  Sterling traded off a $.1.21 handle into worries around the latest House of Lords Article 50 vote and the UK budget due later today. That weakness gave UK equities a leg-up initially and helped them stay in the black for most of the session while others were more mixed.

In the markets, government bonds did very little, establishing some sort of holding pattern ahead of the ECB, UK budget and the non-farm payroll report. The 10-year Bund yield edged lower to 0.32% (-2bp) and the OAT was left unchanged at 0.96% amid little election-related news flow, leaving the spread between them to move up to 64bp. Equities also failed to lurch in any direction with any conviction, left a small up or small down throughout the session. That meant that the field was wide open for the corporate bond markets and borrowers were not slow in coming forward, as suggested above.

It was as if the corporate bond market was in a world of its own, ignoring the more cautious tone around other asset classes.

Primary flurry continues

€650m issued in a 7-year maturity for the gas distribution specialist, Italgas

Priceline Group was the latest US domiciled borrower to visit for €1bn in a 5-year maturity at midswaps+67bp and 18bp inside the opening price talk.

The Motability Operation Group issued a 2-part deal in euros and sterling. The euro-portion was for €500m in an 8-year maturity at midswaps+47bp and just 8bp inside the opening guidance. The deal was just over 2x subscribed. The sterling tranche delivered £350m in a 15-year maturity for investors and had interest of £1.4bn.

Italgas came up with €650m in a 7-year, some 15bp tighter than IPT. Daimler chipped in with an increased €500m tap of its 2-year FRN. Molson Coors Brewing lifted an increased €500m also in 2-year floater format and Thermo Fisher Scientific took €500m in 10-year funding – and lopped 20bp of the initial price talk.

So, a good day for IG non-financial sector, with six borrowers across low and high beta gradings and €3,650m in the process. The month is barely a week old, but already we have had €8.25bn printed as we head inexorably towards our target of somewhere in the €30bn area.

Elsewhere, for the higher yielding junkies, we had a small deal for €300m from Liberbank SA in a 10NC5 Tier 2 structure to yield 6.875%.

Secondary cash credit stable

We had another grind tighter in IG secondary cash markets, and overall it left the Markit iBoxx cash IG index at 133.25bp – and another new low for the year so far. However, there wasn’t much in terms of turnover and flow in secondary as focus was on the primary market. The sterling market closed unchanged. Unfortunately, the good run came to an end for the high yield market although that might have been expected. No need to worry though, it was predicated on light volumes and the usual defensive bias by the Street into the general weaker tone in equities. The HY Markit iBoxx index was up at B+364.75bp (+4.75bp).

Finally, the iTraxx indices went with that more cautious tone too, just edging higher to 71bp (+0.25bp) for Main and 281bp (+2bp) on the X-Over index.

Have a good day.

For the latest on corporate bonds from financial news sources, click here.

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.