23rd April 2019

So far, sooo good

iTraxx Main

57.9bp, +0.4bp

iTraxx X-Over

246.3bp, -1.2bp

🇩🇪 10 Yr Bund

0.04%, +2bp

iBoxx Corp IG

B+126bp, -1.3bp

iBoxx Corp HY

B+390bp, -2.5bp

🇺🇸 10 Yr US T-Bond

2.57%, -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″]

But it’s super quiet…

It ain’t been a bad month for credit. Actually, it’s been a quite decent one. That’s about all we can hang on to at the moment because the level of activity has fallen so much. For April thus far, IG credit has returned 0.4% (Markit iBoxx), the AT1 market 1.9% and the European high yield market 1.5%. Only the sterling corporate IG bond market is down (-0.3%) but that’s because the underlying Gilt market has sold off – cash index spreads are 9bp tighter this month. The numbers for the year to date are even better, excellent actually (see previous notes) and we’re well-positioned as we head into May/June.

There wasn’t much happening in the opening session of this shortened week. Credit primary popped up with just the odd deal, oil prices edged higher again on that Iranian oil sanction waiver being rescinded by the US, while Bitcoin is nestled in at $5.6k per coin now. It’s a step-up in the US corporate earnings reports while we have US Q1 GDP numbers out on Friday. Little seems likely to change activity-wise through this week’s remaining sessions.

Costs and demand for new primary issuance are still well-aligned. But it would seem that corporate bond yields being at their lows for this year (1.03%, IG iBoxx index), spreads generally on a tightening trend and significant level of pent-up demand for corporate bond risk are not enough to have an immediate impact on a greater number of borrowers to tap the markets.

Our view is that those yields will go lower, spreads tighter and demand still remain intact for a while. So no rush. The high for 2019 on the index yield was 1.71% against a record low iBoxx IG index yield of 0.83% back in September 2016 just as the ECB was hoovering up government and corporate bond risk as part of its QE programme.

We’re just 21bp away from those lows and have no direct ECB assistance. We’d think a new QE programme would set fresh record low yields. None of that is impossible.

S&P eyes a new record high

The earnings season delivered another generally positive set of results with Coca-Cola, United Tech and Lockheed Martin all beating expectations and the latter two upgraded 2019 forecasts as well. The numbers helped lift any earlier gloom we might have had in European equities, and saw most markets head into the black.

The S&P, up 1% as at the time of writing – and needing just 4 points – was around 0.15% below its all-time record high, achieved last year. The FTSE managed to rise by 0.8% and was the outperformed, the Dax was up 0.1% while the Nasdaq gained 1.2% (at the time of writing). It won’t be lost on many that the Vix volatility index is now at 12.3% and in the range of the lows seen over periods in the last 5-years.

The rate market was mixed. The Bund yield rose to 0.04% (+2bp) and did the Gilt yield to 1.23% (+3bp), both in the 10-year benchmarks. In the US, we had a slightly better bid and the 10-year Treasury yield edged to 2.57% (-2bp).

In credit, primary in euro-denominated markets had Wendel issue €300m in a 7-year offering priced at midswaps+115bp. The book was up at around €2.4bn (so 8x subscribed) and allowed the borrower to reduce the final costs to them by 35bp, after they had gone out with initial pricing of midswaps+150-155bp.

There are plenty of deals in the pipeline, with many slated for the high yield market such as Netflix (€ and $), EG Group (€), TelePizza (€), Tesco (£) and William Hill (£).

Credit index pushed a little lower (better offered) to effectively unchanged with Main at 57.9bp (+0.4bp) and X-Over 1.2bp lower at 246.2bp. As for the cash market, a little squeeze again which left the index at B+126bp (-1.2bp) for the IG market. The high yield index closed 2.5bp lower at B+390bp.

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.