6th April 2017

Trump-Xi summit stifles activity

FTSE 100
7,332, +10
12,218, -65
S&P 500
2,353, -7
iTraxx Main
75bp, -0.5bp
iTraxx X-Over Index
289.5bp, -2.5bp
10 Yr Bund
0.26%, unchanged
iBoxx Corp IG
B+130.25bp, -0.25bp 
iBoxx Corp HY Index
B+376bp, -1bp
10 Yr US T-Bond
2.36%, +1bp

It’s all a blur

Xi Jinping

We’re in danger of losing this week. It’s almost passed us by with little happening in the markets to excite. Credit primary has delivered in fits and starts but we think overall the amount of supply has disappointed.

Equities have played out in a range with investors using the French elections and the Tump/Xi get together as an excuse to stay sidelined, while government bonds have generally sustained a better bid – but on what, we’re not so sure. Secondary credit is probably a little better bid, if anything. Macro is good and improving, geopolitics offer some cause for concern (Syria, Russia), the Brexit negotiations are on their way, all leaving the French elections as the one potentially big unknown we face this month.

For borrowers, should they be apprehensive about the eventual winner – they need to be getting deals in now. Or, markets have called it wrong and while borrowers have funding requirements, they are prepared wait. April might just be a damp squib as far as primary credit is concerned.

The better growth data yesterday – as measured by the overall Eurozone PMIs for March – failed to move either equities or government bonds. Midweek lull. The solid US ADP employment report gave a boost to US equities for a while but the Fed minutes later reversed the gains on fears of equities looking “quite high”.

Volkswagen: Sterling issues

In the corporate primary market, we had a few deals nonetheless. France’s ASF issued  9-year deal at midswaps+52bp for €500m and Innogy took €750m in 8-year funding at midswaps+55bp (-15bp versus IPT).

We wrapped up the IG non-financial issuance with a double-header from Madrilena Red de Gas in a couple of €300m deals in the 8-year and 12-year maturities – and both were finally priced 20bp inside the opening talk. Erste Group was in for €500m of AT1 structured issuance while Credito Valtellinese plumped for a small €150m T2 offering.

Volkswagen continued its capital markets comeback following up on that €8bn deal a couple of weeks ago with a couple of issues in sterling. They took a combined and increased £850m in 4-year and 8-year maturity issues.

So the €1.95bn of euro-denominated IG deals in the session add to the €1.35bn lifted by RCI on Monday, taking the total for the month in these early sessions of it to €3.3bn – and we pass the €90bn mark for the year to date.

Anyway, those slim pickings were the best the session had to offer. With the Trump-Xi get together starting today and the payroll report due tomorrow, we can write-off the rest of week, too.

It’s been a long week already

Just €3.3bn of IG non-financial issuance, nothing in HY, a couple of senior bank issues but some interesting subordinated debt transactions. After last week’s flurry, we might have reasonably expected a decent period ahead of the shortened Easter weeks to come. Spreads have barely moved and the market focus seems to be on geopolitical situations. The non-farm payroll report is just a distraction. However, after the strong ADP numbers, Friday’s non-farms will be good and the rate-wallahs we be speculating again the number of rate hikes the Fed will muster in 2017.

Anyway, Gilts were the main under performers in the session, the 10-year yield backing up to 1.09% (+3bp) while the 10-year Bund yield was unchanged at 0.26% with OATs just 1bp higher at 0.93%. Earlier rising US stocks failed to pull the Eurozone’s equity market into the black as the session eventually fizzled out.

In the secondary corporate bond market, there is usually little to write home about given the state of liquidity and volumes going through. That’s because primary is all that has mattered for the best part of 7-years. And little happened in yesterday’s session to change that dynamic. As measured by the Markit iBoxx corporate bond index, spreads closed unchanged (B+130.25bp) and the index yield closed unchanged. And the same went for the high yield market where the index was left at B+376bp (-1bp).

For the synthetic indices, iTraxx Main closed at 75bp (-0.5bp) and X-Over at 289.5bp (-2.5bp).

Have a good day.

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.