26th October 2016

Deals? Oh yes

FTSE 100
7,018, +31
10,757, -3
S&P 500
2,143, -8
iTraxx Main
71.5bp, +1bp
iTraxx X-Over Index
321bp, +1bp
10 Yr Bund
0.03%, unchanged
iBoxx Corp IG
B+122bp, unchanged 
iBoxx Corp HY Index
B+407bp, -1.5bp
10 Yr US T-Bond
1.75%, -1bp

Something for everyone…

Deal for Danone

Big deal: French company Danone

The wave of supply had a bit – well rather a lot, for everyone. Non-financial corporates, subordinated debt, covered bonds and SSA issuance galore in euros and dollars. Finally, the natives will be happy as they were getting a little restless – especially at the lack of non-financial supply.

Admittedly – and quite disappointingly, yesterday’s supply from the non-financial sector was just one borrower (acquisition finance related), but came knee-deep in tranches and volume. That is, five tranches and €6.2bn of debt issued off a book of €22bn for the Danone transaction. Draghi will look at it and perhaps feel vindicated that issuance is up because of the ECB’s QE related corporate bond purchases – it isn’t. Really, we do know better!

Other than that, there was little to get excited about. There was no need, after all we were fully engaged in the plethora of deals. Equities and bonds had one of those rare sessions where they didn’t do much, moving up or down in tight ranges. The focus was elsewhere.

On the earnings front, we had 3M and Caterpillar missing and revising guidance lower while GM, P&G and United Technologies (for example) all beat expectations. The UK newsflow was around another terminal for Heathrow airport’s expansion. Stocks did very little, although hopes and then fears or disappointment around Monte dei Paschi’s turnaround plan had Italian equities underperforming as financials came under pressure.

There was a dip in US consumer confidence, probably because of the Presidential elections, while BoE Governor Mark Carney played it with a straight bat in front of his grilling by the House of Lords committee.

All in a day’s work.

Primary sluice gates flung open


Magic: Spain’s Merlin Properties printed €800m

Danone took all the plaudits, but we had much more to keep all and sundry in fixed income markets occupied. The SSA space was packed, the FIG arena seeing covereds and juicier deals from Merlin Properties (senior) and a Tier 2 offering from BFCM. The deal from Danone takes us to €18.6bn for the month-to-date and ahead of the same month last year – and in 2014. And to around €240bn for the year.

The pipeline is still good and especially so for the high yield market. It’s looking like that busy session just gone has the potential to continue for a few days yet. There’s little to stop us after all; the earnings season is doing its thing while the “other” news flow shouldn’t really impact what happens in the primary market for borrowers looking to get some funding in.

Secondary markets effectively closed

It comes as no surprise that spreads closed completely unchanged. That Danone deal had us all excited and we forgot to trade anything else, although with government bond and equity markets not moving much either, there was never going to be much change in credit valuations. The Markit iBoxx index closed at B+122bp (unchanged). It was a similar story in the high yield market with spreads just a basis point better and left at B+407bp for the index – although it was the 22nd consecutive daily tightening this month – every session actually in October.  That’s some going.

Long gone are the days where single name event risk (Phones 4U?) and the like had a negative impact on spread markets in HY. It’s eerily quiet on this front. Alas, Carney and all, the sterling corporate bond market also closed completely unchanged!

Government bonds closed the session a little weaker (yields higher at a stretch) and stocks, as mentioned, proffered little. The front-end in the US was under some pressure on rate fears although the back-end was better bid, but all around a basis point or two. In the synthetic space, Main closed at 71.5bp (+1bp) and X-Over at 321bp (also +1bp).

That’s it. Let’s hope for another busy primary session. Back tomorrow.

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.