3rd October 2017

Corporate bonds: The September Report

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

September threw up a fairly messy and mixed month where performance was disjointed, affected by factors specific to the various asset classes and particularly within fixed income.

Sterling credit lost 2%, IG credit was flattish and Eurozone government bonds lost 0.5%. High yield credit returns were positive on cash index tightening of 20bp. CoCos continued to outperform.

We had lower supply in IG non-financials than expected, the high yield market funded over €8bn of corporate debt and the senior financial market gave us a better than expected €13.5bn.

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

European equities had a difficult time of it in August, but recovered hard in September. The DAX was up 11.8% in the nine months to end September, having been up just 5% in the period to the end of August.

Investment grade credit returns edged lower in September, but are still up 1.6% in the nine months to the end of September. Sterling IG spreads (Markit iBoxx) were flat in the month. Returns dropped 2% and the year to end of September performance fell back to +2.8%.

The high yield market outperformed, with spreads around 20bp tighter in September and the nine month performance rose to 5.5% for this shorter duration market. Spreads for this market were left just a few basis points away from the record lows seen in early August.

The AT1/CoCo market has also had a superlative year so far, the iBoxx index for this structured product recording a +13% performance in the opening nine months of 2017.

Full returns data charts/analysisclick here

IG non-financial supply in September came in at a below-par €26bn and the first nine months of the year are recording €210bn of issuance. We’re €60bn short of last year’s second-best total on record and €75bn short of the record supply in 2009. We would say that Draghi’s plan to get more issuance away at low spreads/yields/costs for borrowers hasn’t worked – not in IG anyway.

High yield supply for the opening nine months comes in at €48bn and we are just €9bn short of 2017 being a record year. We believe that we will get to that record amount. After all, we have had several €5bn+ months and we know that the pipeline is rammed. So there is little reason why October and November can’t be kind to the high yield markets from an issuance perspective, but that assumes we avoid any prolonged period of the window slamming shut on event-risk grounds.

Full issuance data charts/analysis: IG | HY | Senior Financials

Every issuance deal for the month: IG | HY

We are off to a good start for Q4, with risk assets opening up higher across the board. The economic news flow has been solid in the US and Eurozone and offers a supportive backdrop.

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.