5th December 2017

Leaving no one behind

iTraxx Main

47.2bp, unchanged

iTraxx X-Over

228.0bp, +0.5bp

10 Yr Bund

0.33%, -1bp

iBoxx Corp IG

B+98.7bp, unchanged

iBoxx Corp HY

B+293.5bp, +2bp

10 Yr US T-Bond

2.38%, +2bp

FTSE 100 [wp_live_scraper id=”4″], [wp_live_scraper id=”5″] DAX [wp_live_scraper id=”12″], [wp_live_scraper id=”13″] S&P 500 [wp_live_scraper id=”10″], [wp_live_scraper id=”11″]

Too early to batten down the hatches…

Judging by the movement in spreads over the past week or so, secondary credit has probably closed its account for this year, save for the €1bn+ of lifting per week of super-rich bonds by the European central bank! The markets have a real December/year-end feel to them at the moment, but we think that some of that might be due to Brexit negotiation uncertainties and also the political worries filtering through into the German business community’s thinking.

According to an IHS Market PMI survey in Germany, the index had fallen to a three-month low as service sector executives dim their growth expectations. In addition, the sell-off in US equities during the afternoon session on Monday, which faded a super earlier start in the day might have had some cause for concern.

Elsewhere, the news flow was mixed with Spanish industrial production accelerating in October, Eurozone retail sales declined in October versus September, UK diesel car sales plummeted again in November and the UK service sector slowed in the same month while prices rose.

Then there was a cacophony of comment from various parties on the Brexit shambles of the previous day to deal with. In the US, service sector growth slowed too, following some solid gains in September and October.

With all that to take in, it is no small wonder that credit market participants are hoping year-end comes sooner rather than later, that we can bank the current levels of performance and reset the level back to zero before we’re off again. Credit has had a great year, surpassing the expectations of nearly every forecaster.

Because of a solid session for equities on Monday, there was nothing doing in secondary credit. Spreads ended that session and Tuesday’s close on unchanged. In fact, even primary was relatively quiet, and the same was also observed in Tuesday’s session. Mind, the deals that we did see were mainly higher beta in nature, offering a juicier coupons and thus were well-received as a result.

For the rest, the headlines around the Brexit negotiations dominated. The post-mortem of Monday’s dramatic yes/no Irish border dealings will continue for weeks to come. Sterling was a little weaker again, Gilt yields were better bid and the FTSE traded flattish. The rest of the market was treading water and leaving us with the temptation, as mentioned earlier, that we might have seen the best of this year’s business. Even Bitcoin was calmness personified for most of the session, as judged by its recent standards.

High beta issues dominate a light primary session

A €1bn deal for Equinix

Italian insurance group Cattolica (or Societa Cattolica di Assicurazione) was first to price in the session, in what is a very rare offering from the borrower. The group issued €500m in 30NC10 Tier 2 notes priced to yield 4.25%, which was over 60bp lower than the opening yield guidance and made possible on books exceeding €3bn.

The other big deal in the session came from the US-based leading global independent data centre operator, Equinix. The borrower issued what is a huge €1bn deal (for this market) in 10NC5 senior notes due to be priced at around 4%. That’s €72.8bn for issuance for this market this year so far, and given the size of the now bulging pipeline, we must be looking at €2-4bn more of issuance before we close for business in a couple of weeks or so.

In IG, it was Hong Kong based Cheung Kong Infrastructure which added €500m in a 7-year offering at midswaps+60bp (-10bp versus IPT) being the sole borrower in the day.

Session fizzles out into a bore draw

Gilts responded to the Brexit news flow by gaining bit of a bid and yields edged lower, the 10-year left to yield 1.27% (-2bp). Most Eurozone government bonds followed suit, leaving the equivalent maturity Bund to yield 0.33% (-1bp), OATs 0.63% (-1.5bp) while 10-year maturity BTPs were yielding 1.70% (-2bp). US Treasury yields dropped a touch, the 10-year lower at 2.37% (-1bp). 2s/30s flattened by 4bp!

As mentioned above, there was not any real zest about equities in Europe, while US stocks were generally mixed but mostly in positive territory with the Nasdaq outperforming.

In credit, the synthetic indices played out the same way as equities and rate markets – barely changed. Main was left at 47.2bp and X-Over was 0.5bp higher at 228bp.

As for the cash market, well it closed completely unchanged in IG with the iBoxx Markit cash index left at B+98.7bp. And with all the Brexit issues making much noise in the press, the markets are not budging, with cash credit unchanged even if CDS levels for some UK names (and UK sovereign credit risk) rising a little. The high yield market edged wider too, the index left at B+293.5bp (+2bp).

Have a good day.

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.