4th September 2017

Corporate bonds: The August Report

Welcome to the creditmarketdaily.com update for the corporate bond market to the end of August 2017.

Fixed income staged a comeback in August as geopolitical event risk boosted the bid for safe-haven assets. So, rate market participants saw returns boosted and, having languished deep in negative territory (up to -1.2%) for returns in the period to end July, they clawed back much performance and returns were flat in the 8-month period to end August.

The lower beta safe-haven rally helped boosted IG credit, where total returns jumped from +1.2% to +1.8% in the 8-months to end August versus the period to end July. And that is even after spreads (iBoxx) for IG credit widened 8bp.

Spreads charts/analysisIG | HY | Senior & Sub Financials | Corporate Hybrids | GBP Corporates | CoCos

Equities had a choppier time of it, all down a little in the month but returns are still at respectable levels (DAX up 5%, for example). In the US, the S&P and Dow have held above 10%, YTD.

High yield corporate returns improved less – to be expected given the close correlation between them and equities, but are still up at 5.0% for the year to date, while the CoCo/AT1 index was unchanged, returning 12.0% this year so far.

Spreads in both these markets widened by around 20bp and 40bp, respectively.

Returns data charts/analysisclick here

On the new issue front, the final week of the month provided a level of respectability into the primary market statistics. We were greeted with a flurry of issuance which almost doubled the IG non-financial supply levels. A €30bn+ month for issuance is quite possible for September, geopolitical event-risk permitting.

From zero to €8bn is how it’s played out for senior financials with all the supply intros market coming in the final few sessions – and we’ve passed the €100bn mark for issuance in this asset class, for the year to date. High yield corporate supply disappointed though, with just two deals for €625m, which we believe will be corrected through September given the number of mandates outstanding.

Issuance Data charts/analysis: IG | HY | Senior Financials

Every issuance deal for the month: IG | HY

Going forward, the situation in east Asia might introduce a level of caution into the markets in the opening sessions of the month at least. Nevertheless, we still remain constructive for corporate bond markets, expecting a high level of issuance in primary and the resulting confidence (from deals being taken down well) to filter through into tighter spreads.

We still prefer higher beta risk, and think that the CoCo/AT1 market can still outperform, given the demand we observe from investors for higher yielding assets.

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.