Archive

Monthly Archives: July 2018

9th July 2018

Breathless on Brexit

MARKET CLOSE:
iTraxx Main

67.7bp, -1.7bp

iTraxx X-Over

302.0bp, -3.3bp

🇩🇪 10 Yr Bund

0.30%, +1bp

iBoxx Corp IG

B+133.7bp, -2.4bp

iBoxx Corp HY

B+379.9bp, -6.1bp

🇺🇸 10 Yr US T-Bond

2.85%, +2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Grumpy ol’ day…

The market might be open for new deals, but few are choosing to jump through the window and get a deal on the screens. It started off like a grumpy old session, albeit moderately positive but like a real Monday in July – few were taking any chances.

The Brexit situation took centre stage amid several ministerial resignations following the publication of the White Paper now put forward to the EU detailing the UK’s negotiation stance. No doubt, if current form prevails, the EU will straight bat it back – and then we can expect the real carnage within the Tory government to begin.

Away from that and in credit markets specifically, the borrowers were covered bond issuers, several senior bank deals and a short-dated sub-benchmark dated floater which offered slim pickings to get us started for this week. And so the primary market slump goes on. We were fairly comfortable that issuance could potentially be a little more prolific given the lower levels of deal flow we have been served up with this year so far. After all, the demand is intact for most primary offerings given the high levels of sidelined cash.

However, it is probably time to throw in the proverbial towel given the distractions we have from the World Cup and President’s Trump visit to European shores starting later this week. Few will want to get involved after next week, just as the holiday season kicks in, meaning and we close up until September.

Just €120bn has been issued in IG non-financials this year, our take on that level and the frustrations derived from it being well-documented in previous comments. The average level of IG non-financial issuance in the 2014-2017 period was around €260bn. It is highly unlikely that the September to December period will offer up much more than €100bn (and that would be going some), meaning that we are most likely going to be left with the lowest level of IG deal flow since the 2012 big Eurozone peripheral crisis year.

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8th July 2018

Watch out, watch out, Trumpy’s about

MARKET CLOSE:
iTraxx Main

69.4bp, -2.3bp

iTraxx X-Over

305.3bp, -6.9bp

🇩🇪 10 Yr Bund

0.29%, -1bp

iBoxx Corp IG

B+135.1bp, -1.1bp

iBoxx Corp HY

B+407bp, -3.2bp

🇺🇸 10 Yr US T-Bond

2.82%, -1bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Trying to make sense of the credit market…

There’s an argument that the corporate bond market has failed to deliver this year. The evidence is stark when we look at the usual drivers of expectations for the market. Investment grade spreads are 40% wider so far as measured by the iBoxx IG cash index (B+96bp to B+135bp), against most expectations that the first half would offer a more fruitful level of performance. Higher beta credit has not though fallen out of bed as it might have, given that IG performance, with spreads widening roughly in line if not less than the IG index.

Of course, credit markets are at risk of a significant level of further weakness if the economy takes a serious nosedive, and/or if there is a serious equity market correction of some sort. But it would be the lesser of all evils if any of those occurred.

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5th July 2018

Primary needs to flow

MARKET CLOSE:
iTraxx Main

71.7bp, -1.1bp

iTraxx X-Over

312.2bp, -3.8bp

🇩🇪 10 Yr Bund

0.30%, -1bp

iBoxx Corp IG

B+136.2bp, -1.3bp

iBoxx Corp HY

B+407.3bp, -6bp

🇺🇸 10 Yr US T-Bond

2.83%, -1bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Before we put our feet up…

Primary is needing to flow again

The US Independence Day splurge of deals in Europe was not to be repeated in Thursday’s session which fizzled out to be much more of what we might have expected when into holiday mode.

Fresenius’ €500m deal on Wednesday is the pick of the bunch for this week’s IG non-financial borrowers – the blue-chip, classy German medical group being one of the few that would get investors clamouring for its bond offerings any day of the week. Issuance, more generally, has been in the doldrums though – all year.

The level of deal flow this year has been confusingly light (we could describe as slumped), given one might have thought that it was last chance saloon to lock in still near historic lows in funding and boost balance sheet cash for that investment and M&A splurge to come.

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3rd July 2018

Dark clouds hovering

MARKET CLOSE:
iTraxx Main

74.0bp, -1.3bp

iTraxx X-Over

320.4bp, -6.5bp

🇩🇪 10 Yr Bund

0.295%, -1bp

iBoxx Corp IG

B+137.9bp, -0.2bp

iBoxx Corp HY

B+416bp, -7bp

🇺🇸 10 Yr US T-Bond

2.84%, -3bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Credit market caught up in the gloom…

Covered bonds, state-owned/controlled corporates, SSAs, a Reit and a corporate in sterling. The session was a damp squib for the euro-denominated primary corporate bond market. We’ve hoped, huffed and puffed but the opening half of the year – and going into the second half, has really failed to deliver (except in high yield primary).

It doesn’t look like we’re going to see much improvement on the meagre pickings thus far, given the upcoming holiday period and all that event risk around Trump’s effort to make “fair trade deals” with the US’ global partners.

The US Independence Day holiday on Wednesday just before the non-farm payroll report on Friday means that Thursday is the last chance to squeeze deals in this week.

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2nd July 2018

It’s like Chinese water torture

MARKET CLOSE:
iTraxx Main

75.3bp, -+2bp

iTraxx X-Over

326.9bp, +7.9bp

🇩🇪 10 Yr Bund

0.31%, unchanged

iBoxx Corp IG

B+138.1bp, +1.5bp

iBoxx Corp HY

B+423bp, +6bp

🇺🇸 10 Yr US T-Bond

2.86%, unchanged

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Drip, drip, drip…

It’s not quite how we would have wanted it, but we’re off to a weaker start to the second half of the year. Global trade war worries top the list with Trump tweeting over the weekend about the EU being ‘as bad” on trade with the US as China is and all sounding extremely ominous. However, we also have a political crisis brewing in Germany although a government reshuffle no matter how bad wouldn’t necessarily lead to any additional material economic decline. The uncertainty is what rankles with the markets. As a result they are in no mood to turn the page into some kind of new, fresh brighter outlook; We followed with sharply lower in stocks (but only at the open) after Asia markets lost 2% or more.

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1st July 2018

Chapter 7 up next

MARKET CLOSE:
iTraxx Main

73.3bp, -2.5bp

iTraxx X-Over

319bp, -10bp

🇩🇪 10 Yr Bund

0.30%, -1bp

iBoxx Corp IG

B+136.5bp, unchanged

iBoxx Corp HY

B+417.6bp, -0.5bp

🇺🇸 10 Yr US T-Bond

2.86%, +2bp

🇬🇧 FTSE 100

,
🇩🇪 DAX

,
🇺🇸 S&P 500

,

Who knows what to expect…

At least we closed the month with the markets on the up, but it was a scatty June, fraught with much event risk. So we’re only going to be thinking in terms of it being a relief rally that ended the final session of the first half of 2018. Performance is what most will look to first.

Equities managed to come off their worst levels, but the DAX was still off by around 2.5% while currency fluctuations (weaker sterling generally) helped to keep the FTSE just the wrong side of flat for the month. US equity markets were higher.

Credit endured had a poor final week in secondary and spreads widened to their highest point of the year across the board, with all market sub-sectors recording negative performance for the month (see below).

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