7th April 2017

Goldilocks is back

FTSE 100
7,303, -28
12,231, +13
S&P 500
2,356, +3
iTraxx Main
74.3bp, -0.7bp
iTraxx X-Over Index
284.6bp, -5bp
10 Yr Bund
0.26%, unchanged
iBoxx Corp IG
B+130.4bp, +0.2bp 
iBoxx Corp HY Index
B+375.7bp, -0.2bp
10 Yr US T-Bond
2.34%, -2bp

Steady as she goes

This week has not turned out how we might have expected or hoped for following a fairly good March for risk assets. It would appear that the Trump-Xi summit put the dampeners on anyone wanting to get involved in any material fashion. Political correctness isn’t Trump’s forte, so there is some potential for collateral damage, so to say. Hence we can understand that a cautious mood prevailed through the week. At the close of business on Thursday, we had just five borrowers in IG in the market for €3.8bn, while we finally got a couple of high yield deals to open the account for that asset class for the month. Sterling markets saw VW continue to reacquaint itself with fixed income investors and the banks dished up a few deals too. That was enough to keep us ticking over in credit whilst spreads played out in a tight range amid little flow – and basically unchanged.

Yesterday’s session petered out into one of those boring score-draws (football parlance) and what would normally be expected for a Friday in August. We don’t hold up for much of an increase in activity into the Easter break either, although for the credit markets we would not be surprised if we were met with a decent volume of new issues in the early part of next week. After all, there is a decent pipeline building and both the HY and IG could present up to €2bn and €5-7bn of deal flow, respectively.

For both markets, if we are right, that would potentially more than double this week’s efforts. As things stand at this stage – and with the unusually late Easter break to come, it seems a big ask that we get anywhere near the €30bn issued in April of last year (€27bn in April 2015), while the €16bn of IG non-financial corporate bond issuance in April 2014 looks like a more achievable target for this month in IG non-financial issuance.

The sole IG (rating-implied) corporate deal yesterday came from the unrated cheese marketer Fromageries Bel which took €500m in a 7-year maturity at midswaps+120bp, and reduced the initial guidance by 20bp in the process. Well, the book was 4.5x oversubscribed, so why not! In the high yield market we had a couple of borrowers with Grupo Antolin issuing €400m in a 7NC3 deal followed by Schmolz + Bickenbach with a €200m lift in a 5NC2 deal (to be priced at the time of writing). So far, they’re the only HY deals in the market this week.

Goldilocks market looking out for daddy bear

It was broadly a risk off session during the morning and then we recovered a little – although quite obviously few were getting carried away with it. At best, we can say that equities moved in sideways fashion in tight, established ranges and never threatened to break out of them. So generally it was a small up into the close as far as the day’s performance was concerned for most of those equity bourses.

For govvies, that was a sign to go slightly better bid for choice early on and then close flat. So bond yields did very little or nothing. The 10-year Gilt yield was at 1.10% (+1bp), the equivalent Bund yield at 0.26% (unchanged) and the outperforming OAT was left to yield 0.90% (-3bp) in the 10-year area. Apprehension around the Florida summit made for a 2.34% yield on the 10-year US Treasury (-2bp) early on, and after some price weakness later it recovered to close at that level.

And for the corporate bond market, nothing. We closed the session unchanged which meant that the Markit iBoxx index spread level was at B+130.4bp and – clutching at the proverbial straw for a positive – the uptick in the underlying (govvies) is seeing returns for the first few sessions of this new quarter in the black. The IG sterling market also closed unchanged and at G+152bp, the index is actually unchanged for the year although returns are up at well over 1% owing to the Gilt bond rally.

It should come as no surprise to anyone that the high yield bond market also closed unchanged, the cash index left at B+375bp.

Finally, in the synthetic world, the iTraxx indices ended the session with Main at 74.3bp (mid, -0.7bp) and surprisingly perhaps, X-Over was 5bp lower at 284.5bp.

That’s it for this week. Back on Monday.

For the latest on corporate bonds from financial news sources, click here.

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.