6th November 2017

(Free content) Corporate bonds: The October 2017 Report

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

October saw the corporate bond market power on, leaving us with record tight levels in the high yield, non-financial hybrid and contingent convertible financial bond markets. We also achieved the record level of supply for the high yield market, surpassing the previous record (€57bn) from 2014.

Credit’s performance was excellent with 10bp of tightening in the IG index in October/returns +2.7% YTD, although the high yield market did better as the index tightened 20bp/returns YTD 6.3%. The higher the risk, the higher the juice, the greater the returns. CoCos sit on top of the pile in every sense.

Supply in high yield for the month of almost €14bn left October as the best month for issuance for several years. IG issuance disappointed at €18bn.

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

US equities continued to set record highs, almost on a daily basis. Europe followed in their slipstream, and the DAX was up 15% in the year to the end of October. The Dow was up 18%.

The AT1/CoCo market has also has a superb year so far, the iBoxx index for this structured product recording a +17% performance in the opening ten months. Many investors will have gained more than 20% already.

Returns YTD to end of October

Full returns data charts/analysisclick here

IG non-financial supply in October came in at a below-par €18bn and the first ten months of the year are recording €228bn of issuance. We’re €35bn short of the average of the previous few years.

High yield supply for the opening ten months comes in a little shy of €62bn making 2017 a record year for issuance in the high yield market. With the pipeline still fairly heavy, we must be looking at upwards of €67bn in total supply for the full year.

HY Issuance: New Record (Already)

Erratic supply dynamic in senior financials leaves the total for the first ten months of issuance at just €123bn. And for the full-year? €140bn, perhaps.

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

Every issuance deal for the month: IG | HY

The corporate bond market has had a good couple of months such that performance has recovered strongly and higher beta risk has delivered the kind of returns we might have thought would be out of reach. Nevertheless, such is the demand for corporate risk, backed up by continued inflows into corporate bond funds, that we have to think that record spread levels will be maintained and total returns in excess of expectations for an already extremely rich asset class sustained.

There is little reason to change strategy now. Higher beta risk is going to outperform and the compression trade will pay off through the rest of this year. And most likely into the beginning of 2018.

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.