24th September 2019

Lies, lies and more lies

iTraxx Main

55.0bp, unchanged

iTraxx X-Over

223.3bp, -0.7bp

🇩🇪 10 Yr Bund

-0.60%, -2bp

iBoxx Corp IG

B+124bp, unchanged

iBoxx Corp HY

B+405bp, +4bp

🇺🇸 10 Yr US T-Bond

1.66%, -5bp

🇬🇧 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″]

Primary keeping credit markets occupied…

Thermo Fisher, what else? The US borrower finally hit the screens and added €4.4bn to the IG non-financial corporate bond issuance tally, leaving September (with four sessions still to go) as the best month for deals in years. For the full-year, we’re up at €250bn and, unless the market completely falls out of bed (unlikely), just another €35bn is needed between now and year-end for a record annual total. We’re calling it, with €300bn very much in view.

There’s clearly still decent enough demand for corporate bond risk. Corporate treasury desks, never ones to miss an opportunity to get cheap funding on balance sheet, have been falling over themselves to do just that. Investors, on the other hand, are also front-running the ECB and trying to get their hands on paper before the manipulative hand of the central bank makes its presence felt.

Thus the heavy volumes have not necessarily led to a widening in spreads. In fact, they haven’t. There have been odd periods of moderate repricing, but with the ECB’s deep pockets making their way into the market, secondary should also hang on to its gains although we believe spreads are going to tighten through Q4.

Generally, though, it was another weary session – the second in succession, although credit market participants would have been kept busy with the Thermo Fisher transaction, registering almost €15bn of interest.

That aside, there was that monumental decision by the UK’s Supreme Court to quash the prorogation of Parliament by the government, and setting up the next stage of the battle for Brexit. The ball falls back into the PM’s court, but likely not before Parliament is recalled. Cunning plan or not, it looks like we are heading for a general election and potentially another Brexit-referendum.

That level of uncertainty will be enough to keep Gilt yields anchored. And there was little happening in the Gilt market in the session – the 10-year left 2bp lower infield at 0.52%, the FTSE was flat for the most part, but ended 0.6% lower. In credit, we did have food retailer WM Morrison’s in the market for £350m of a 12-year at G+200bp (-10bp versus IPT, books at £900m).

Thermo Fisher adds to the reverse yankee total

Thermo Fisher added €4.4bn and became the latest in a long line of borrowers from the US attracted to funding rates and demand in the European debt markets, and have been getting away deals in size for all of 2019. This time, the issuer added through a 5-tranche deal and issued €800m in a long 5-year at midswaps+70bp. Another €800m came in a long 8-year at midswaps+90bp with €900m in a 12-year at midswaps+105bp. The next €900m was in a 20-year maturity offering at midswaps+140bp with the 30-year, €1bn leg costing midswaps+180bp. The €16bn of investor interest allowed final pricing lower by 20-30bp across the tranches versus the initial guidance.

US issuers have been very active so far this year

The five tranche deal is the fifth such one this year, the others coming from Medtronic (twice), Fidelity National and Danaher. The total for the full month for IG non-financial issuance comes in at €48bn, while the €250.3bn issued year to date is made up of €80.6bn from US-domiciled corporates.

That 32% of the total issued year to date compares with just 11.9% for 2018 and against a record 26% in 2015 of non-financial US borrowers funding in the euro-denominated capital markets.

Other deals in the session took in high yield rated issuer Elis SA which borrowed €500m in a long 5-year at 1% and €350m in a long 8-year at 1.625%, both 37.5bp inside the initial guidance with books up at a combined €2.1bn. The volume year to date for HY rated deals is now at €45.8bn (versus €62bn for the whole of last year).

In financials, we had BBVA lift €1bn in a 5-year senior non-preferred at midswaps+80bp (-15bp versus IPT). The total senior financial debt issuance volume for the year to date rose to €130.3bn – which is ahead of last year’s 12 month total of €129bn. At the current run rate, we ought to be looking at something in the region of €160bn for the full-year. Finally, Banco BPM issued €350m in a 10NC5 subordinated deal, priced to yield 4.25%.

Defensive and wary, still

As for the rest of the market, the US opened in sprightly fashion and gave markets in Europe a leg-up. However, into our close, the US equity markets were in the red and we managed to close that way. The FTSE lost 0.6% and the Dax 0.3% as US markets were up to 1.3% lower. Losses were accelerating as impeachment proceedings against Trump were gathering momentum (Ukraine aid/call).

Trump: Never far from the headlines

In rates, the 10-year Bund yield moved 2bp lower to -0.60% and the US Treasury in the same maturity to 1.66% (-5bp), just as Trump was also castigating the Iranian regime in his UN speech. Macro news flow during the session was light, save for Japanese manufacturing activity declining in September – in line with all other markets.

Credit wasn’t doing too much away from primary. In index, iTraxx Main Series 32 closed a touch lower/unchanged at 55bp as did X-Over which was left at 223.3bp (-0.7bp).

In the cash market, there was some relative outperformance (without anything happening) – given the aforementioned backdrop. Markets generally though seem to be lacking any clear boost to provide upward momentum at the moment. The iBoxx IG cash index closed at B+124bp which was unchanged on the previous session. The same was seen in the AT1 market (index at B+489bp) while the HY index closed a touch wider, at B+405bp (+4bp).

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.