27th July 2016

T minus 3.. holidays!

FTSE 100
6,724, +14
10,248, +50
S&P 500
2,169, +1
iTraxx Main
68bp, +0.5bp
iTraxx X-Over Index
320bp, unchanged
10 Yr Bund
-0.03%, -1bp
iBoxx Corp IG
B+126bp, -0.2bp 
iBoxx Corp HY Index
B+458bp, unchanged
10 Yr US T-Bond
1.56%, -1bp

FOMC – front and centre…

U.S. Federal Reserve Chairman Janet Yellen holds a news conference to announce raised interest rates in Washington December 16, 2015. REUTERS/Jonathan Ernst - RTX1Z0RF

Janet Yellen

It might the Fed’s turn today, but it was a very UK-centric session on Tuesday. There was much focus on MPC member Weale’s comments on the prospect of BoE action in August (further easing needed), we had June mortgage approvals falling to a 15-month low and business lending declined in the month too on Brexit fears. Importantly for some, British Telecom survived the latest Ofcom review as a single entity (just) and, finally, we had approval of the Ladbrokes/Coral betting group merger.

Elsewhere, oil was back to having a difficult time of it as the crude glut grows as Brent, for example, edged lower again to trade off a mid-low $44 per barrel handle for much of the day. In the US – and as if we ever needed to highlight how difficult the macro outlook is, Caterpillar warned on full-year sales/profits. This matters, as the group was suggesting that domestic demand was weak as mining and oil sectors were a drag, while overseas markets were nervous and weaker post-Brexit, and revenues were not helped by the stronger dollar.

In the markets we had a choppy but contained session for the most part, and it was uneventful. Government bonds saw a slightly better opening bid fade into the afternoon session, credit was stable to a little tighter while primary markets were throwing up odd deals. Stocks were mixed but the moves in the major indices were relatively small, although the DAX saw bigger swings. Today, it is the turn of the FOMC to dominate, and we suspect this will lead to a further curtailment of activity in both the secondary and primary markets. There ought to be no action on rates in the US but, as is usual, all and sundry will dissect the language in the communique for clues of a possible September hike. And, given the importance attached to the current Fed meetings, there is excuse aplenty to stay sidelined.

In primary, the sole IG non-financial borrower was Vodafone as it took €1bn in 15-year funding and managed to lop 20bp off the initial price guidance for the privilege. The group tried to add a 30-year tranche to the deal (likely reverse enquiry) but it didn’t materialise. That takes the monthly run rate for July to €11.65bn for IG non-financial supply. Staying in IG markets but in financials, Wells Fargo added €2bn in a long-10 year senior deal. For the HY market, Bulgarian Energy and Ineos printed €1.2bn between them, although the latter additionally issued a $550m tranche.

Much ado about nothing


DAX moving to be back in black

As suggested above, the session offered little and petered out into being bit of a damp squib. In government bonds, 10-year Gilt yields moved lower at the open t0 0.79%, before the edged up to 0.82% (+1bp) while the equivalent Bund yield reacted the same way seeing -0.06% before closing at -0.03% (+1bp). Equities saw the DAX eventually 0.5% higher and the pick of the bunch again as it continues to make inroads into its 2016 deficit, with just under 500 points left to recover before it is in the black for the year!

For corporate bonds, we edged tighter for choice but the index was effectively unchanged. The holiday season looks like it has set in and we would think that even the assigned central banks across the Eurozone are now having difficulties lifting bonds on behalf of the ECB. The Markit iBoxx index was left at B+126bp and the the yield on this index rose off the previous day’s record low by a basis point to 0.92%. Returns are at 5.5% YTD. In high yield, the market closed completely unchanged with little volume and focus on the Ineos and Bulgarian Energy deals. Finally in synthetics, Main closed a touch higher 68.5bp and X-Over was unchanged at 320bp – highlighting the lack of earth shattering/exciting news in the markets during the session.

That’s it. As a reminder – and on a housekeeping note – for August, we will only be publishing on a Tuesday. 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.