29th September 2020

📈 Corporate bond markets – What crisis?

iTraxx Main

60.4bp, +0.5bp

iTraxx X-Over

347.2bp, +0.4bp

🇩🇪 10 Yr Bund

-0.55%, -2bp

iBoxx Corp IG

B+130bp, unchanged

iBoxx Corp HY

B+489bp, -1bp

🇺🇸 10 Yr US T-Bond

0.64%, -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″]

Just can’t get enough…

Monday was a dud for the credit market, upbeat as it was for equities. Nerves were back with us on Tuesday ahead of the first US presidential debate. However, it was a day when a record was broken, with IG non-financial issuance achieving new heights for any year, just nine months into 2020. Volumes shot past the €318bn record set last year – which itself was 20% higher than the previous best seen in 2016.

Bankers in some areas of the business love a crisis. This one has really opened the sluice gates and corporates have been falling over themselves to get liquidity/cash/funding on the balance sheet. Whether it is for a rainy day or because it’s just cheap, they have loaded up.

After the deal flow on Tuesday, the quarter’s penultimate session, the IG non-financial corporate bond issuance total rose to €318.75bn. We can move on to something else, like contemplating whether the market is ready for €375bn for the full-year (it is), while an assault on the €400bn level isn’t likely now.

We do seem to have slowed in the pace of issuance but that should not come as a surprise to anyone. The current run rate for new deal issuance has been unprecedented but seems unsustainable. We also now have the general market volatility that comes with the US election, the pandemic, lockdowns, vaccines and so on. At least the Brexit trade negotiation mood music has improved. Overall, a quieter primary market looms as we head in Q4.

That’s not to say that credit has had its day. Far from it; the demand for paper remains as strong as it has been all year. Yield, clipping a coupon, something more than zero in the corporate world has a decent behind it. We’re lacking defaults and with further policy easing nigh, that demand for corporate bond risk will remain in place.

Busy primary even as spreads feel a bit of pressure

So the five corporate bond issues did the trick, smashing that previous annual record with 3-months of the year still to go. Repsol, Adidas, Campari, Scania and Informa lined up to print €3.1bn between them while Julius Baer returned after pulling its dollar AT1 issue last week and was joined by Handelsbanken which also went for a dollar AT1 print.

Having printed a dual-tranche issue for €1bn at the beginning of September, Adidas was back for a further €500m but in a sustainability-linked format. The 8-year issue printed at midswaps+40bp, which was 35bp inside the initial guidance off interest at around €3.4bn. Scania followed with €500m in a no-grow 3-year maturity offering, priced 40bp inside the initial guidance at midswaps+105bp and a book at an impressive €4.25bn.

Drinks group Davide Campari-Milano lifted €550m in a 7-year at midswaps+165bp, garnering interest in €2.1bn and managing to lop 35bp off the initial price talk. Spain’s Repsol went for a 4-year transaction for €850m priced at midswaps+65bp (books €2.2bn, final pricing -25bp versus IPT), while Informa Group issued an increased €700m in a 5-year at midswaps+265bp (-35bp versus IPT, books almost €2bn).

Bank Julius Baer also returned for its $350m AT1 issue (PNC6) priced to yield 4.875% (-25bp versus IPT, books just $1.5bn) and Handelsbanken lifted $1bn but split equally between a $500m PNC6.5 AT1 issue and $500m in a PNC10.5 issue. They were priced to yield 4.375% and 4.75%, respectively.

Crossover credit El Corte Ingles was prepared to pay up handsomely for an increased €600m March 2024-NC1 deal, getting the deal away at a yield of 3.625%.

Waiting for the debate

Equities spent the session in the red in Europe, while a brighter US open soon faded and bourses there were up to 0.3% in negative territory as we closed in Europe. Ahead that first debate – which could be a game-changer and alter the dynamics of the election, they were never going to do much.

Nor was there much of note on the data front save for some slightly better than expected sentiment surveys. The US Conference Board’s consumer confidence index jumped markedly higher though, to 101.8 from 86.6 in August. Not that it helped risk markets.

The final round of Brexit trade talks before the EU Summit in a couple of weeks was underway with little comment, as at the time of writing. The FTSE ended 0.5% lower and the Dax 0.35%.

We were barely a touch of weaker in credit protection, with iTraxx Main up at 60.4bp (+0.5bp) and X-Over at 347.2bp (+0.4bp).

And the cash markets also ended close to unchanged. the iBoxx IG index was at B+130bp, the AT1 index was a touch better at B+671bp (-7bp) and the HY index at B+489bp.

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.