15th March 2018

New deals effortlessly absorbed

iTraxx Main

50.2bp, -0.2bp

iTraxx X-Over

255.3bp, -0.8bp

10 Yr Bund

0.57%, -2bp

iBoxx Corp IG

B+99bp, +5bp

iBoxx Corp HY

B+315.5bp, +5bp

10 Yr US T-Bond

2.82%, +1bp

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″]

Anyone for a Cartier…

We were again furnished with plentiful issuance across a wide range of corporate sectors which took in non-financials, financials (senior and subordinated) and the real estate sector. The deals kept the corporate bond market fully engaged. Elsewhere, equities traded in mixed fashion before receiving a late push higher, rate markets close to unchanged to slightly better bid in Europe. Secondary credit lived through a particularly weak session with the cash index 5bp wider in one of the biggest moves in over a year! Too much issuance? That’s not what we suggested in Wednesday’s comment. We think that Friday will herald a much lighter day. Investors will take the opportunity to consolidate positions after that whirlwind of primary activity.

It has though been a blistering midweek as the primary sluice gates opened and we absorbed that increased €8bn Sanofi offering, along with a plethora of other issues which would have taken the fancy of most investors (some higher yielding, good solid borrowers).

It sets the market up nicely for the next two weeks where,  judging by the pipeline, activity will likely remain brisk. We had three borrowers in IG non-financials on Thursday which between them issued €4.75bn, taking the monthly total to €21.9bn, of which over €15bn has come this week alone! For the year to date, we passed the €50bn mark, now up at €51bn.

The flow of news and headlines through the day were not necessarily positive. Unilever decided to move its corporate headquarters to Rotterdam following Britain’s decision to leave the EU, Lufthansa downgraded profits forecasts for 2018 on higher oil costs, Russia was still lashing out against the UK sanctions without announcing its retaliatory measures and the IEA was warning against a trade war suggesting it would reduce the demand for oil (we’re not sure that’s a bad thing).

Deals, deals, deals

Richemont were in the market with a three-tranche deal

Investors delight in inaugural deals. There’s always room in portfolios for blue chip corporates, and especially so when they carry the gravitas of a deluxe brand like Richemont. A high single-A rated borrower, owner and seller of Cartier and Van Cleef products as it also looked for acquisition refinancing (a la Sanofi on Wednesday), the triple-tranche deal was lapped up.

Richemont was not shy in coming forward, with the three-tranche offering for €3.75bn to become the third largest issuer of euro-denominated debt this year. The 8-year maturity offering for €1.5bn was priced 10bp inside the opening guidance at midswaps+35bp, followed by a 12-year €1.25bn tranche at midswaps+45bp (also 10bp inside the initial talk). The 20-year effort for €1bn was priced 5bp inside the opening chat, at midswaps+65bp and all off a book which was over €6bn. The other non-financial borrower was SES SA which took €500m off a book close to €1bn subscribed and priced at midswaps+90bp (-10bp versus IPT). And it does not stop there as Reed Elsevier, now known as RELX, came with a long 9-year for €500m at midswaps+60bp.

Staying with non-financials, but moving to the high yield market, Axactor AB‘s €150m deal was priced at Euribor+700bp, for a June 2021 maturity. Paprec was readying a dual-tranche €800m offering (not priced at the time of writing, likely Friday’s business).

In financials, the subordinated offering came from ING Groep, in the form of a 12NC7 Tier 2 structure priced at midswaps+135bp for €750m (ING also issued $1.25bn in a 10NC5 Tier 2 deal priced to yield 4.70%). In senior, we had CIBC printing €750m in a 5-year at midswaps+35bp and Goldman was back for €750m in a 10-year at midswaps+105bp. SEB issued £250m in a 3-year FRN, for the sterling market.

For the REIT sector, which has been quite prolific these past 18 months or so, Vonovia SE lifted €2.1bn in a 4-tranche transaction taking in a 4.75-year floater (€600m, Euribor+60bp), and 8 year (€500m, midswaps+80bp), 12 year (€500m, midswaps+105bp) and 20-year (€500m, midswaps+140bp) fixed tranches all 10-15bp inside the initial price talk, with books a close to €4bn.

The Ivory Coast took €1.7bn in a dual-tranche deal (12-year and 30-year with juicy 5.25% and 6.625% coupons, respectively) and Nestle issued $550m (5-year) in dollars, wrapping up a particularly busy day.

Markets rise as tone improves

US equities bailed out the European ones as they opened higher and gave bit of a boost this side of the pond. European bourses gained by up to 1% at the close, the Dow had at one stage got back almost 1% following a couple of weaker sessions before succumbing and fading the gains.

In rate markets, the 10-year Gilt yield edged lower to 1.43% (-0.5bp), the Bund was better bid to leave the yield on the 10-year benchmark at 0.57% (-2bp) while US Treasuries were a touch better offered and left to yield 2.82% (+2bp, 10-year).

As for credit index, iTraxx Main and X-Over were barely changed, albeit better offered for choice (lower). Main closed at 50.2bp and X-Over at 255.3bp, around 0.2bp and 0.8bp tighter, respectively.

In cash, there was little focus in secondary, but we gapped wider. The IG cash index (Markit iBoxx) was up at B+99bp (+5bp) in the biggest spread weakness for this index (market) in over a year. The high yield index was only 5bp wider at B+315.5bp. Against our expectations, as suggested in Wednesday’s comment, the IG non-financial supply might be spooking a few.

That’s it for this week. We’ve had the issuance we so sorely needed, there’s been some spread weakness in secondary into the welter of deal flow. The issuance has not derailed our market and few will be fretting that we are heading materially, or otherwise, wider. We have little doubt that once we are through this spell of deals, the market will settle again.

Have a good day and weekend.

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.