8th December 2020

🛣️ End of the Brexit road

iTraxx Main

47.5bp, unchanged

iTraxx X-Over

240.5bp, -3bp

🇩🇪 10 Yr Bund

-0.61%, -3bp

iBoxx Corp IG

B+101.6bp, unchanged

iBoxx Corp HY

B+358bp, +2bp

🇺🇸 10 Yr US T-Bond

0.91%, -2bp

🇬🇧 FTSE 100

6,558, +3

🇩🇪 DAX

13,278, +8

🇺🇸 S&P 500

3,702, +10

It’s no deal unless someone rolls over…

We’re into the final few sessions in which to get any decent business done. And of course, a yes/no answer on a Brexit trade deal. On the business front, high yield borrowers are lining up, but IG ones will be fewer. Spreads should edge tighter for choice. Equities will broadly follow their path of least resistance, higher.

European rates are on hold until after Thursday’s ECB. The rest are wondering whether the 10-year Treasury benchmark will pop up past 1.00% and can Bitcoin zip through $20,000 per coin for the first time.

The headlines at the moment, though, are dominated by the Brexit trade agreement – or lack of one, as the case might be. We’re not going to call it, except that the lunatics in the asylum might just manage to pull off an agreement. We’re not even sure if the market will rally after such an outcome, tired as they are of it all. Wednesday seems like the day that a decision will finally be made.

That aside, the virus is raging across the US and running havoc still across many parts of Europe. We are still going to have several months of disruption, as vaccinations are being administered and we wait for the immunity to subsequently kick-in. However, gearing up for that eventuality should keep markets better bid to year-end and on a positive footing through Q1.

S&P sees 3,700

As suggested, markets need a push to help them make higher ground, and for that S&P index to stay above 3,700. The index hit that historic level during the session recording 3,703 intraday high late into the session. Likewise, the Dow at least is dipping in and out the 30,000 level. They’re symbolic, and good target levels for which to feed off as we kick off 2021.

Anyway, Tuesday’s session was a bit of a damp squib. There was little to add on the Brexit trade talks situation and even Eurozone GDP for Q3 came in line with previously flagged expectations. So there was nothing to grab hold of to push markets higher, and most were left treading water to being better offered.

However, into the close, a pick up in the US market helped us over the line into the black in European equities – just.

Rates though were better bid, and the US Treasury yield on the 10-year dropped by 2bp to 0.91%, the Bund yield declined to -0.61% (-3bp) while the Gilt yield fell back to 0.26% (-2bp).

Credit primary was quiet, with little following on from Monday’s Ford’s £750m 3.5-year deal priced to yield 2.75% (-35.5bp versus IPT) and VodafoneZiggo’s €700m 8NC3 offering (to yield 2.875%).

For Tuesday, the deals of note were the HY transactions from Encore, which priced an increased €415m of a 7NC2 floater at Euribor+425bp, which was followed up by real estate group, Samhallsbyggnadsbolaget i Norden AB. They issued €500m in a PNC5.25 deal priced to yield 2.625% (as well as an additional senior social bond).

The indices saw iTraxx Main unchanged at 47.5bp and the X-Over index 3bp lower at 240.5bp and the compression between them seeing the ratio lower at 5.06x.

In cash, it’s like the secondary market has closed. IG spreads were unchanged for the fifth session in a row, but the rally in the underlying has seen the iBoxx IG index yield at a fresh record low of just 0.32%.

The high yield market didn’t do much either, the index at B+358bp (+2bp) and in a B+355bp – B+360bp range for over a week.

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.