19th May 2020

📊 Landmark: IG Issuance at €200bn

iTraxx Main

81.7bp, -2bp

iTraxx X-Over

489.2bp, -10bp

🇩🇪 10 Yr Bund

-0.46%, +2bp

iBoxx Corp IG

B+202bp, -4bp

iBoxx Corp HY

B+652bp, -15bp

🇺🇸 10 Yr US T-Bond

0.72%, -2bp

🇬🇧 FTSE 100 [wp_live_scraper id=”17″], [wp_live_scraper id=”24″] 🇩🇪 DAX [wp_live_scraper id=”19″], [wp_live_scraper id=”25″] 🇺🇸 S&P 500 [wp_live_scraper id=”21″], [wp_live_scraper id=”26″]

And still lots to play for…

Equities’ performance for May to date is about flat. In credit, IG total returns (iBoxx) are at -1%, and the same in HY while the AT1 market is showing -2.2%. iBoxx index spreads are +10bp, -3bp and +40bp, respectively, in May so far.

Yet the corporate bond market is still being seen as the ‘go-to’ market – or, certainly, that’s what primary is telling us.

There is cash to invest, and investors need to get it to work. We still have 7 months to go in which to worry about performance for 2020. As long as the inflows are incoming, that’s good enough for now. And if we are looking at a recovery in macro sometime beginning in the second half of the year, credit spreads will be dragged tighter along with any rise in risk asset valuations.

We have seen over €47bn of IG non-financial issuance this month and we are closing in on that record monthly supply of €57bn from April 2020. There has generally been some ‘push back’ in the sense that we are seeing subscription levels decline although in a historical context they are still very good. New issue premiums are, as we suggested in Monday’s note, declining – as is performance on the break.

The HY market showed some signs of life in the early May period, with €3.6bn of deals, but it looks as if it has gone back into hibernation. Issuers, or potential issuers, have crawled back into their shells and confidence would have been hit by the big sell-off at the back end of last week putting paid to Sappi’s transaction.

For the year to date, the total issuance in the IG non-financial market has now just passed the €200bn mark. That’s a huge level of issuance and all credit to investors who have absorbed it. The average level of issuance for any given year over the past 10 years has been around €250bn. This is a record run-rate and all the more incredible given the weak macro backdrop – but precisely because of the difficult environment in which we are seeing this issuance.

In addition, it highlights the excellent support for IG corporate borrowers. Spreads will do their thing once macro recovery sets in.

Primary sneaks through the €200bn mark, year to date

Another near-on €5bn was issued in the session. We can look for a few to print again on Wednesday before the Ascension Day holiday across parts of Europe on Thursday which will likely push into a quieter session for Friday as well. Another €2bn though and May will be the second-best on record for IG non-financial issuance.

Fresenius was back with a dual-tranche offering with €500m lifted in a 6-year print at midwaps+135bp (-40bp vs IPT) and €750m issued in a 10-year at midswaps+165bp (-45bp vs the initial talk) with books for the combined deal up at €5.5bn. Redexis Gas issued €500m in a no-grow 5-year at midswaps+225bp (-40bp versus the IPT) on books of €3bn. So some good tightening versus the initial pricing regime for both deals albeit amid mixed investor interest levels.

The big one of the day though came from AT&T. The US giant issued €1.75bn of an 8-year at midswaps+180bp (-30bp versus IPT), €750m in a 12-year at midswaps+213bp (-37bp versus IPT) and €500m in an 18-year maturity, costing midswaps+255bp which was 35bp inside the initial talk. Books for the deal came in at around €10bn.

IG Issuance as of May 19, 2020

ING issued €1.5bn in a 11NC6 Tier 2 deal, priced at midswaps+240bp with books of €4bn pushing the final price 30bp tighter versus the initial gambit. Finnish real estate group Kojamo issued €500m in a 7-year at midswaps+222bp (-33bp versus IPT, books 3x subscribed).

In high yield, Cogent Communications tapped its June 2024 issue for a further €215m (coupon 4.375%). And Romania managed to lop 50bp between IPT and final pricing on both tranches of its dual-tranche €3.3bn offering.

Credit catches up on super Monday for equities

We couldn’t quite follow through on Monday’s massive rally in equities. The Dax still managed to close unchanged, though, but the FTSE was off by 0.8% and just came off the lows for the day to close above 6,000. At the European close, US stocks were back to flat having been lower at the open.

There wasn’t too much by way of news to move markets. In rates, we had a slight back up in yields in Gilts – the 10-year up at 0.25% (+2bp), while the UK gilt syndication saw the government reap £7bn flat to the 40-year, with demand in excess of £52bn. The Bund yield was higher by 2bp as well, at -0.46% and the UST yield dropped by 2bp to 0.72%.

The credit indices edged lower leaving iTraxx Main at 81.7bp (-2bp) and X-Over protection 10bp lower at 489bp.

In the cash market, the last few days of an upbeat tone helped the IG index move to B+202bp (-4bp), and as if in almost delayed reaction, the AT1 index ratcheted 60bp tighter to B+892bp. The HY index tightened by 15bp to B+652bp.

Have a good day.

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.