23rd March 2016

We are the people

FTSE 100
6,193, +8
9,990, +-41
S&P 500
2,050, -2
iTraxx Main
73bp, +2bp
iTraxx X-Over Index
301bp, +3bp
10 Yr Bund
0.21%, -2bp
iBoxx Corp IG
B+155bp, unch 
iBoxx Corp HY Index
B+538bp, -2bp
10 Yr US T-Bond
1.94%, +2bp

A day when markets come second… We find ourselves again paying our respects to the victims of yet another terrorist atrocity, this time in Belgium. Our thoughts and deepest sympathies are with all the victims and their families who have been affected by the bombings. The situation in Brussels was enough to make sure that we would definitely have a very subdued session. The markets were looking to crawl back into their shell pre-Easter anyway, and the latest incident looks like it is business over this side of the Easter holiday. Primary was closed save for SSA and Covered bond deals and that has left the week so far surprisingly parched as far as deal flow is concerned. A few days of reduced issuance is good – as we have suggested before – in order we can digest the heavy load before it; but, it seems like we have had our fill of supply on the corporate side, by and large, until we open for business next Tuesday. On the economics/macro front, we have much to think about from the latest eurozone data dump, largely from Germany. The ZEW index measuring economic sentiment in Germany was down in March, while the markets recovery over the past couple of weeks seems to have boosted business sentiment. That is, the Ifo survey registered a small bounce this month. If ever they were mixed signals, we had a similar pattern from the PMIs where services showed a slight recovery and manufacturing hit 6-month lows, both in Germany. In France, manufacturing contracted in March although the service sector returned to growth. For the eurozone as a whole, PMIs for both manufacturing and services were up slightly. Small wonder the ECB decided to act, especially when looking at the mixed signals emanating from Germany, the engine for growth in the eurozone. All is not lost, but it doesn’t look great, and we think the risks are still clearly to the downside.

More of the same likely this week… The news of the bombings in Belgium sent the markets into risk aversion mode at the open and that was best evidenced in sharply lower stock markets. Government bonds were bid up as the safe-haven flows saw demand for them. Some of that unwound as the session progressed and European stocks managed to close out in the black, by up to 0.5% in some cases. The 10-year Bund yield had dropped to 0.18%, but ended the session just 2bp lower at 0.21%, while yields were slightly lower across most govie bond markets in Europe. Outperforming BTPs are now yielding 1.24% and Bonos 1.43%, both close to unchanged in the session. That minimal movement in stocks and government bonds was reflected in oil markets too, where the price per barrel was either a small up (Brent) or a small down (WTI), with both anchored around the $41 mark.

Credit markets subdued, and also unchanged… Corporate bond markets followed other ones. Little activity and little change in valuations. There was a slightly better bid overall but IG credit closed out a trickle better. As measured by the Markit iBoxx corporate bond index, spreads for IG were unchanged at B+155bp. There was some small weakness in the AT1 market where we can be pretty sure that Deutsche Bank’s CoCo isn’t likely going to gain much traction from here, given that Moody’s is potentially on the move to downgrading the bank’s credit rating (stuck at €82 for the 6% issue, for example). Corporate hybrids closed unchanged. In high yield, the picture was as elsewhere, but whereas we might have seen a much more defensive market previously, we actually managed to close a smidge better. The iBoxx index was left at B+538bp (-2bp). As mentioned earlier, there was no issuance which overall made for a drab session. Finally, on index, they played out fairly choppy but off the wides at the close. Series 25 Main was up at 73bp (high 74bp) and X-Over at 303bp (308bp).

Back tomorrow, 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.