Archive

Monthly Archives: July 2018

31st July 2018

Not bad

MARKET CLOSE:
iTraxx Main

60.9bp, -1.8bp

iTraxx X-Over

282.9bp, -4.3bp

🇩🇪 10 Yr Bund

0.45%, unchanged

iBoxx Corp IG

B+125.5bp, -0.5bp

iBoxx Corp HY

B+377bp, -1bp

🇺🇸 10 Yr US T-Bond

2.96%, -2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Needing to keep those fingers crossed…

The markets must have had a decent July, judging by the warnings we’re seeing now about not getting complacent as risk assets ride high (relatively). We’ve had a few decent sessions of late. Of course, geopolitical tensions remain elevated but risk markets have done very well this month, managing to correct higher in most markets.

Equities have bounced and credit spreads have moved tighter, ensuring total returns for the year-to-date have got back to more sensible levels following a fairly difficult opening first half. The risks to the downside remain elevated and we could yet live through a material correction, but right now markets are choosing to trade positively – especially as the war cry around the trade tariff situation has been more muted of late.

It helps that the Chinese have seemingly taken a more reflective and considered approach against Trump’s more gung-ho, erratic and at times rumbustious Twitter outbursts. We just might re-open for business proper in late August with the market in good shape. That means credit markets should be ready for a quarter of higher levels of issuance which will be taken down well as spreads continue to grind tighter into it and rescue performance, while reducing those high levels of portfolio cash positions.

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25th July 2018

Hot, hot, hot

MARKET CLOSE:
iTraxx Main

63.0bp, -0.5bp

iTraxx X-Over

285.9bp, -1.7bp

🇩🇪 10 Yr Bund

0.39%, -1bp

iBoxx Corp IG

B+129.6bp, -0.7bp

iBoxx Corp HY

B+385.4bp, -1bp

🇺🇸 10 Yr US T-Bond

2.94%, -1bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Holding our own…

A potentially difficult summer lies ahead

The markets are not going to give up without a fight, and it is looking as if we are into the early throes of a difficult summer. Trump continues to do his level best to make sure we don’t rest up too much, this time urging the EU to scrap all tariffs ahead of talks with the EU’s Juncker. Eurozone growth is slowing as we know it to be, as evidenced by PMI data earlier this week and business survey data on Wednesday. However, a more sprightly report from the German industrial sector allied with that Chinese stimulus put in place to help prop up their domestic economy saw to it that markets will rally if the news flow warrants it.

We are not totally down and out and so far, and it’s been a good month for risk assets with July’s performance to date seeing most markets registering some decent gains. Equities lead the way with 2%+ gains for the month so far being typical, while IG credit spreads are 6bp tighter (iBoxx index) and total returns are a shade in the black for the month so far even after that recent sell-off in the underlying.

The high yield market has fared better with spreads 30bp tighter in the index and returns up at +1.5% for the month so far. After a fairly difficult May and June, that means total returns now come in at -0.5% year to date in high yield, representing a stellar turnaround when set against the near -2% of performance in the period to end June!

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23rd July 2018

There’s no holding him back

MARKET CLOSE:
iTraxx Main

65.5bp, -0.3bp

iTraxx X-Over

291.6bp, -2.3bp

🇩🇪 10 Yr Bund

0.41%, +3bp

iBoxx Corp IG

B+131bp, -0.5bp

iBoxx Corp HY

B+387bp, -2.5bp

🇺🇸 10 Yr US T-Bond

2.95%, +6bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Turning protocol on its head…

The markets are now into the holiday season and that means activity will largely grind to a halt. It had already shown signs of it last week, but the pace dial is really set to ‘slow’ now. We will get a trickle of new issues in primary, secondary activity will be hugely dominated by the ECB – even if the number of bonds they bag falls over the summer weeks, leaving the broad direction of the spread markets at the mercy of the headlines. There’s been and will continue to be plenty of those headlines, while unfortunately, the good news in those headlines is a little light on the ground at the moment.

Most of what is deemed to be bad – or it’s delivery is not what we might have been used to – comes from the US President. Trump has had a dig at the Fed (on interest rates), praised Putin, threatened to impose import tariffs on all Chinese exports to the US and for good measure thrown in a currency manipulation jibe at both the Chinese and the EU. And that was just last week. This week? He kicked off with a warning aimed at Iran’s leaders.

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19th July 2018

Few will be getting rich(er) this summer

MARKET CLOSE:
iTraxx Main

65.7bp, +1.7bp

iTraxx X-Over

296.7bp, +4.9bp

🇩🇪 10 Yr Bund

0.33%, -1bp

iBoxx Corp IG

B+131bp, +0.5bp

iBoxx Corp HY

B+390bp, +1bp

🇺🇸 10 Yr US T-Bond

2.85%, -2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Feeling content, though…

The week just gone is likely going to be a flavour of what to expect over the next few to come. Everything pretty much rangebound, that is. In primary, it will be the offering of the odd deal – and that includes those which require a little more effort like from the high yield market.

Equities will not be doing too much unless a major crisis erupts, but the upside is fairly limited, we would think, for the next few weeks even if (as expected) the second quarter earnings season delivers. In secondary credit, we are looking for a moderate tightening through the next six weeks, hopefully coming off the back of those rangebound equities and absent any material event risk. Even swap rates are close to flatlining, with the 5-year rate in a 3bp range and the 10-year only in a 4bp range over the past 5 weeks.

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18th July 2018

And now, the end is near…

MARKET CLOSE:
iTraxx Main

64.0bp, unchanged

iTraxx X-Over

291.8bp, +2bp

🇩🇪 10 Yr Bund

0.34%, -1bp

iBoxx Corp IG

B+130.5bp, unchanged

iBoxx Corp HY

B+389bp, -0.5bp

🇺🇸 10 Yr US T-Bond

2.88%, +2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Headline risks fading for the moment…

It’s just as well the Brexit debate continues to rage, because there isn’t too much to focus on elsewhere. There will be some light relief that UK inflation number was stable at 2.4% in June & below market expectations, and now making highly unlikely that the BoE will raise rates at its 2nd August meeting.

Sterling took a blow as that and the messy Brexit/political situation saw it close in on $1.30 the figure. Equities received a mild boost from the lack of real negative news, for a change, with the FTSE almost back to flat for the year. Even the DAX was up by another 0.8% and now only around 150 points away from also being flat for the year (-3.4% still). Bitcoin’s probably worth a mention, as it has risen from the below the $6000 a coin level to almost $7500 in a month.

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17th July 2018

Holidays are coming, really!

MARKET CLOSE:
iTraxx Main

63.9bp, +0.4bp

iTraxx X-Over

289.9bp, +1.5bp

🇩🇪 10 Yr Bund

0.35%, -2bp

iBoxx Corp IG

B+130.4bp, +0.5bp

iBoxx Corp HY

B+389.7bp, +1.5bp

🇺🇸 10 Yr US T-Bond

2.86%, unchanged

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Summertime blues…

It’s not getting any better in terms of activity – while the rest of the market is going sideways in terms of pricing. Admittedly, there was an uptick in issuance in the session, but mostly it was financials and covered bonds. There is an eerie disquiet around the plain vanilla non-financial IG corporate bond sector. These borrowers are probably mostly done until September.

The headline risks in the session were quite limited, save for a continued heap of warnings about how a non-deal Brexit would unleash irreparable decline in the UK economy (just like to doomsayers were warning pre-referendum). No matter, sterling assets didn’t really step out of line versus other markets with equity and rate markets all moving in tandem in the day.

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16th July 2018

The numbers don’t lie

MARKET CLOSE:
iTraxx Main

63.5bp, -1.5bp

iTraxx X-Over

288.4bp, -3.6bp

🇩🇪 10 Yr Bund

0.30%, +2bp

iBoxx Corp IG

B+129.1bp, -1bp

iBoxx Corp HY

B+388bp, -4bp

🇺🇸 10 Yr US T-Bond

2.86%, +3bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Holidays are coming

€3.8bn, €2bn and €8bn versus €13bn, €5bn and €2.7bn. That’s IG non-financial, HY and senior financial issuance, respectively, in July so far – against the full month total for the same month in 2017. The numbers don’t hide anything. In fact, they make for a fairly depressing monthly read. They’re important because the market doesn’t really function without a steady, decent level of deals.

The IG deal flow is the most important as this sector makes up some 60% of the total issuance in most years. The month has delivered just €3bn in IG non-financial issuance, but the low level of flow might not surprise anyone. It ties in with the relative dearth of issuance that we have seen from this category all year, with just €121bn of issuance to date versus €163bn for the first seven months of 2017.

There’s a backed-up pipeline, and we think the window is open. Syndicates must be chomping at the bit to clip some pre-holiday fees, and convince borrowers to get deals on the screens ahead of the summer break which will duly arrive once this week ends. Mind, given that deal pipeline, we would not be surprised if several borrowers even try and chance their arm next week, market conditions permitting.

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15th July 2018

Calling a spade a spade

MARKET CLOSE:
iTraxx Main

65bp, -1.7bp

iTraxx X-Over

292bp, -6bp

🇩🇪 10 Yr Bund

0.28%, -2bp

iBoxx Corp IG

B+130.9bp, -1bp

iBoxx Corp HY

B+392bp, -1.7bp

🇺🇸 10 Yr US T-Bond

2.83%, -2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Trump sides with a hard Brexit… or does he?

We’re trading the headlines around the US President, and it’s gripping stuff. With Trump being his usual inimitable self, there is little chance that we’re going to feel overly comfortable with anything. He has dropped a few bombshells already and the UK government’s stiff upper lip has needed to be as rigidly fixed as it could be.

So the UK has been in the doghouse with the President, even as they entertain him with tea & scones at the Palace. The political impact and possible fallout did feed through into some apprehension in markets at the end of last week, leaving us to close out higher in equities but without any real zest behind it. Sterling, in particular, took some punishment as a result of Trump’s trade deal comments, before recovering after he qualified his views!

Activity overall, though, is light and the thin markets into the holidays can move sharply and disproportionately lower as they react to any negative event-risk. On the other hand, we can creep higher should the prevailing news flow be fairly neutral.

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12th July 2018

Trump still the news

MARKET CLOSE:
iTraxx Main

66.7bp, -1.1bp

iTraxx X-Over

298bp, -6.3bp

🇩🇪 10 Yr Bund

0.29%, -1bp

iBoxx Corp IG

B+131.8bp, -0.4bp

iBoxx Corp HY

B+393.7bp, unchanged

🇺🇸 10 Yr US T-Bond

2.85%, unchanged

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Lights out for summer…

So, that’s it for this first part of the year. We’re already into the extended summer holiday period. The corporate bond market doesn’t seem like it is in the mood to play ball for another week or so as judged by the dross of primary deal flow. We believed that the window for new deals was open and we would get a decent chunk of them away through to the end of next week, but the activity that we’re seeing tells us otherwise.

Whether the US/China trade war is culling investors’ appetite for risk – given all that situation entails for growth – or we’re finally just exhausted after several years of having to trade through a multitude of geopolitical and macro event risk situations, it does look like the market is well into wind-down mode for the summer.

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11th July 2018

Trump-inspired trade tensions hit markets

MARKET CLOSE:
iTraxx Main

67.8bp, +1.2bp

iTraxx X-Over

304.3bp, -4.1bp

🇩🇪 10 Yr Bund

0.30%, -2bp

iBoxx Corp IG

B+132.2bp, +0.5bp

iBoxx Corp HY

B+394bp, +2bp

🇺🇸 10 Yr US T-Bond

2.85%, -2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Don’t bet on it…

Trump hadn’t even left US shores and was already throwing punches in several directions ahead of his first engagement in Europe, with NATO. They landed. The one which hurt the market most was the $200bn of additional Chinese imports that the US administration will seek tariffs on – with the Chinese promising to respond. But the President had harsh words on NATO spending and the reliance of Germany on the Russian gas pipeline to the country, before suggesting how his meeting Putin might be easier than with Theresa May – and finished with some warm words for the UK’s (now) former Foreign Secretary Boris Johnson.

The markets reacted. Stocks took a leg lower in the session losing over 1% while rates managed a better bid to reverse the weakness seen in the previous session. The US 2s/10s was back below 30bp and as low as 26.5bp during the session.

We are, however, into the home straight heading into the market close down for the summer, save for the usual deals we will get in the SSA space through the late July/August period. Others might pop up in the plain vanilla corporate sector in both IG and HY, but it’s going to be a very drab period for the new issue market. Secondary is going to be as predictable we would think, as it will trade in line with equities/sentiment.

If a summer of discontent is ahead of us, we go wider into volatile and weaker equities. Although a more standard, event-risk free 6 weeks will leave us most probably better bid for choice and we will have some positive momentum as we return for the last leg of activity starting September.

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