19th November 2019

One last push

iTraxx Main

49.4bp, +0.6bp

iTraxx X-Over

233.1bp, +0.8bp

🇩🇪 10 Yr Bund

-0.34%, unchanged

iBoxx Corp IG

B+115bp, +0.8bp

iBoxx Corp HY

B+400bp, unchanged

🇺🇸 10 Yr US T-Bond

1.79%, -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″]

No let up in primary markets…

It’s beginning to look like we are having one last major push to get business done before we close out for the year. The push can go on for a few weeks! Equities started on a high, but for no obvious reason – and faded the gains, rates didn’t too much though (perhaps better bid) while credit investors were faced with a mass of deals in a very busy session.

Never mind that annual records have already been broken (IG non-financials) even as secondary is just beginning to leak wider and as the ECB is busy lifting the market. This is about getting risk on board.

Borrowers (for one) are not holding back. Just three weeks ago we were far away enough from the record for HY issuance (needing some €15bn to get done) that any notion we might get there was for the fairies. We are now less than €5bn of deals away. It has been an extraordinary month in credit primary.

The continued deterioration in the Hong Kong situation didn’t appear to inflict any weakness in markets. The lack of any news flow in the US-Sino trade talks for once didn’t offer any apprehension to markets either. The early risk-on in equities made for a good day to get deals on the screens. The gains were later faded as the US dropped into the red after also opening in sprightly fashion.

There were a whole host of interesting deals in the market and the higher yielding ones caught the eye. Drugmaker Teva Pharmaceuticals priced €1bn of a long 5NCL deal at 6.0% along with $1bn in the same maturity costing 7.125%. IG rated real estate group Ceetrus issued €300m in a 7-year priced at midswaps+290bp (-20bp versus IPT). And we had Saxo Bank, albeit with a small €60m issue, print an AT1 in a PNC5.5 deal with an 8.125% coupon.

Some €70.3bn of debt has been issued this year (including Teva) so far in the euro-denominated high yield primary market with €12.6bn of it coming this month, making it the second best month for issuance in the European high yield market. And there’s more to go, with just €1bn needed for the record monthly issuance.

The IG non-financial market took bit of a backward step, for a change. We did have deals, though. Japan Tobacco took €500m in a 10-year at midswaps+98bp (22bp versus IPT) with books up at €1.7bn. Spain’s Naturgy Energy issued €750m also in a 10-year, costing midswaps+70bp off a €1.5bn book, with final pricing 20bp inside the initial guidance.

With EssilorLuxoticca and Fresenius Medical lining up a multi-tranche offerings (likely Wednesday), the total IG non-financial issuance will pass €300bn for the first time ever.

For senior bank markets, we had NN Bank lift €500m in a 5.25-year senior preferred priced at midswaps+65bp. Credito Valtellinese issued €300m in a senior preferred to yield 2.125% and Nykredit Realkredit issued €500m in along 3-year senior non-preferred at midswaps+62bp (-13bp versus IPT). The Nykredit deal comes almost two weeks after the borrower was forced to pull a 10-year offering – due to lack of demand, in our view.

Other deals took in Hitachi Capital’s €350m of 3-year debt priced at midswaps+53bp, Legal & General issued £600m in  30NC10 Tier 2 deal at G+305bp (-20bp versus IPT) and Yorkshire Water issued £300m in a 7-year at G+125bp, as well as £100m tap off the 2041s.

Finally, the UK issued £2.25bn in an April 2041 linker tap and there were several covered bond/SSA deals taken down.

Up and then.. flat

Equities had added up to 1% across Europe, and the US was once again residing in record territory across the three main equity bourses. Those gains were faded in Europe as the US gave up its record run, and we ended closing the session flattish in Europe. US markets were mixed, as at the time of writing.

As suggested above, there was no obvious driver for the moves (maybe the impeachment hearings) and it is worth noting also that S&P Vix volatility remains close to multi-year lows at 12.9%.

Rates were mostly unchanged but we did see a better bid emerge into the latter part of the day. 10-year benchmarks closed with Gilts yielding 0.73% (-2bp), Bunds -0.34% (unchanged) and Treasuries at 1.79% (-2bp).

As for credit, the indices edged higher for choice, with Main up 49.3bp (+0.6bp) and X-Over at 233.1bp (+0.8bp).

Secondary IG cash was again a touch weaker such that iBoxx index moved to B+115bp, or 6bp wider in a week. No such worries for the AT1 market with the index 6bp tighter at B+462bp (-11bp in last two sessions) while the high yield market closed completely unchanged (B+400bp).

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.