8th January 2020

🗞️ The show must go on

MARKET CLOSE:
iTraxx Main

44bp, -0.3bp

iTraxx X-Over

212.2bp, -2.3bp

🇩🇪 10 Yr Bund

-0.26%, +2bp

iBoxx Corp IG

B+106.3bp, +0.7bp

iBoxx Corp HY

B+352.5bp, +1.5bp

🇺🇸 10 Yr US T-Bond

1.83%, +1bp

🇬🇧 FTSE 100

7457.02, (-0.58%)
🇩🇪 DAX

13789.00, (-0.91%)
🇺🇸 S&P 500

3386.15, (-0.70%)

Drawing a line in the sand…

At this rate, we’re going to be in need for some window locks – Just to keep borrowers out! Wednesday was another session flush with corporate bond deals keeping credit markets extremely busy. And that, after what seems like a ‘face-saving’ limited response by the Iranian regime against the US. If that’s where we can draw a line, then it will be back to an extended period of sabre-rattling between the two protagonists.

But there is no stopping primary in what seems to be the busiest start to a year for an age. We had deals right across the board, and that meant the euro high yield issuance opened its account for 2020. Equities took only a modest hit at the open, rates were slightly better bid, Bitcoin was finding some support and oil’s rise was measured (just +0.5%). Secondary credit took a back seat and was probably better offered for choice amid little trading flows, with the focus of investors squarely on primary.

Elsewhere, there was no respite for the Eurozone’s nuts-and-bolts economy despite some better service sector data previously. German manufacturing seems to be in freefall. November’s factory orders month on month declined by 1.3% versus expectations of an increase of 0.2% and with industrial production data out on Thursday, the data stream in the Eurozone’s manufacturing sector is not going to offer hope of a bottoming out. We will need to see evidence of that first in Germany.


Another glut of deals in primary

The overwhelming favour of the deal flow was again financials (senior and subordinated this time) but we had a couple of sovereign deals in there too, alongside the first sterling IG non-financial offering of the year from Logicor. Not totally unexpected, BMW was on the screens – as is usually the case for this borrower, which is always keen to get a deal wrapped up early on.

So in the financial space, Unicredit got the ball rolling pricing up a 12NC7 Tier 2 deal priced at midswaps+280bp where books of €3.5bn saw the €1.25bn deal’s final pricing tighten by 30bp versus the initial talk. BNP also issued in a 12NC7 Tier 2 format for €1bn at midswaps+120bp, which was also 30bp inside the initial guidance with books at €3.3bn.

The senior deals came from Santander Consumer Finance for €1bn in 5-year funding at midswaps+60bp (-15bp versus IPT) and then from BFCM, which also issued €1bn in a 10-year senior non-preferred at midswaps+75bp (also -15bp versus IPT). They were followed up by ABN Amro’s 7-year senior non-preferred €1.25bn which came in a 7-year maturity at midswaps+70bp (-20bp versus IPT). The total for senior issuance is already up at €10.5bn – in just 2 days.

There were senior deals in sterling. Intesa issued £350m in a 10-year senior preferred at G+180bp (-10bp versus IT) and Lloyds took £750m in a 6NC5 at G+130bp (-15bp versus IPT).

Veolia Environnment issued €500m

For the IG non-financial market, Veolia Environnment issued €500m in a no-grow 11-year deal at midswaps+48bp with books up at €1.9bn and the final pricing 27bp tighter than the initial talk.

BMW issued a three tranche deal with €1bn in a 3.25-year at midswaps+28bp, €750m in a 7-year at midswaps+48bp with €500m in a 12-year at midswaps+68bp. Final books were up at €4.8bn and final pricing 22bp tighter across the tranches. After 2 days of activity, we’re up at €4.8bn of issuance.

In high yield, the French-Netherlands based telecoms/media group Altice issued a combined €1.7bn in a dual-tranche deal. They took €600m in a 5NC2 effort priced at 2.25% and €1.1bn in an 8NC3 structure priced to yield 3%. Both were priced at the tight end of the initial guidance range.

Other deals of note came from the predominately state-owned Deutsche Bahn which issued €500m in a 15.5-year at midswaps+40bp, Logicor issued £300m in a 10-year at G+200bp and Digital Realty went for a three tranche €1.7bn offering spread across 2.75-year (€300m, midswaps+45bp), 5.5-year (€650m, midswaps+90bp) and 10-year (€750m, midswaps+145bp) maturities.

€4bn Issue from Ireland

We finished up with €4bn from Portugal in a long 10-year at midswaps+33bp (with €24bn of interest) and €4bn from Ireland in a 15-year at midswaps+6bp (and books at over €20bn).


Risk markets firm up into the close

A broad view was emerging that the Iranian hit on the US bases in Iraq was likely ‘it’ for now (no casualties reported by the US) regarding their response to the killing of Soleimani, and so risk assets found a better bid and prices generally moved into positive territory.

It was as if an outbreak of good sense had broken out – from both sides, in a defacto de-escalation of tensions.

Equities were generally in the black after some early jitters but the Dax was up by 0.7% at the end of the day while the FTSE closed flat. US markets were busy setting new record highs (S&P). What else?

Rates were mixed for the most part but ended slightly better offered. The yield on the 10-year Gilt was therefore up at 0.80% (+1bp), the equivalent US Treasury yield moved to 1.85% (+3bp) while the Bund closed to yield of -0.26% (+2bp). Even oil prices dropped, with Brent off by over 2% per barrel to $66.6.

Credit protection costs declined – just, reflecting the tentative improvement in sentiment as the session progressed. iTraxx Main edged to 44bp (-0.3bp) and X-Over dropped to 209.9bp (-2.3bp).

Cash just edged wider again, the iBoxx index up at B+106.3bp (+0.7bp) – and that is around 2.5bp wider this year. Noise.

Not bad, given the welter of supply and volatility in risk assets amid all that event risk. The higher beta AT1 market was unchanged, highlighting the lack of panic in credit – as this market would have come under much pressure otherwise.

Sterling credit was unchanged (iBoxx IG at G+134.5bp) and the euro high yield market essentially was was too, left at B+353.5bp at the close.

Have a good day.

Suki Mann

A 25-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 Credit Market Daily.