22nd May 2019

Time to say Goodbye

iTraxx Main

66.3bp, +1.3bp

iTraxx X-Over

282.8bp, +4.7bp

🇩🇪 10 Yr Bund

-0.09%, -3bp

iBoxx Corp IG

B+136.9bp, +1.7bp

iBoxx Corp HY

B+436bp, +1.75bp

🇺🇸 10 Yr US T-Bond

2.39%, -3bp

🇬🇧 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″]

Election fever rises…

We may have gushed deals on Tuesday but we had the necessary slowdown in the flow on Wednesday, which will have served the corporate bond market very well – Because it will keep investor indigestion at bay, allowing us to absorb that slew of issuance. There is always a temptation from borrowers to flood the market when they know the going is good (as it is now), but during the session we had just Total SA and Schneider Electric (tap) print in IG non-financials – after €5bn of issuance in the previous session, with just the odd borrower in senior financials.

As it has done for much of this year, the credit market appears to be behaving in a measured way, leaving us in decent shape as we close in on the end of the month. We have lost just 0.2% – 1% in performance across the various high/low credit sectors. We can take that, because IG is still up around 4% this year at the moment and high yield returns are approaching 6%.

Politics in Europe was all the rage. The near-universal condemnation of Theresa May’s new ‘bold’ offering on the Withdrawal Agreement Bill (WAB) has shifted the focus to an earlier than expected change in the UK’s prime minister – and sterling reacted accordingly (weakened) on the uncertainty of it as well as the prospect of a Brexiteer PM at the helm of the Conservative Party. The European elections will compete for the headlines on Thursday and Friday, though.

Otherwise, the markets were generally muted to start, still unsure how to treat the trade tariff situation. They’re hoping that there is an amicable resolution but fearful that the two global trading giant trading blocks miss a trick and plunge us into a global trade war. As long as the issue lingers, we are unlikely going to break decisively in any direction.

We eventually gave way and equities, for the most part, failed to hold their earlier gains before eventually ending the session around flat. Rates managed a better bid throughout the session with Gilts leading the way on those fears (hopes?) that Theresa May’s days are numbered as the wall of opposition to her WAB offer grew.

Primary slows – that’s good

As suggested above, we had a slowdown in primary issuance which we believe will have been much welcomed. The slew of deals on Tuesday which included two 3-tranche offerings amongst a plethora of other deals in euros and sterling, will now have been well-absorbed while allowing some attention the offerings on Wednesday.

We still had a three-tranche offering from Total SA, but one of those was in sterling. The dual-tranche euro-denominated debt offering took in a 9-year maturity €650m deal at midswaps+35bp and a 20-year leg also for €650m at midswaps+58bp. The sterling offering was for £500m in a long 7-year at G+80bp, with books at just £750m.

The combined books for the euro offering were up at just €2.5bn and final pricing was 10-12bp inside the opening guidance. It was Total’s second visit to the market this year, having previously in March raised €1.5bn in a PNC5 hybrid issue.

Schneider Electric was the other IG non-financial borrower, but just with a much-increased €250m tap of the 1.5% 2028 deal.

In senior financials, Sumitomo Mitsui Financial Group raised €500m in a green bond priced at midswaps+50bp which was 15bp inside the opening talk off a €1bn book.

Other deals came from Gecina which offered €500m in a 15-year at midswaps+95bp (-30bp versus IPT) garnering a €2.6bn book. And TP ICAP printed £250m of 7-year debt at 5.25%. Schaeffler’s IHO was still to price a couple of HY deals for a combined €1.3bn (one being a PIK note).

Trade jitters stifle markets

Gilt yields fell by 7bp in the 10-year to 1.01% on the back of heightened political uncertainty in the UK, sterling fell through $1.27 again but the FTSE was flat at the close. The 10-year Bund yield declined to -0.09% (-3bp) while the US Treasury in the same as maturity was at 2.39% (-3bp), as at the time of writing.

In equities, the Dax index flipped from being up by over 0.5% to being 0.5% in the red – before ending just 0.2% higher. There wasn’t much apart from UK politics in the headlines, so the lack of any big moves was on the back of lingering trade concerns.

US equities did the same, but were a small down across the various indices (around 0.4%), as at the time of writing. There were some nerves around Trump’s supposed fit of pique during a meeting on infrastructure spending with Speaker Pelosi and Senator Schumer, with the President calling it short after just three minutes.

In credit index, iTraxx Main rose 1.3bp to close at 66.3bp while X-Over was 4.7bp higher at 282.8bp. The cash market did the same, edging a little wider which left the iBoxx IG cash index up at B+136.9bp (+1.7bp) as it probably had a think about that welter of supply on Tuesday with more to likely come, and choppy equity markets.

The high yield market barely budged though, the index left at B+436bp, representing a 1.75bp move for the day – noise.

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.