Archive

Monthly Archives: September 2018

30th September 2018

🇮🇹 Here we go again!!

MARKET CLOSE:
iTraxx Main

68.2bp, +1.1bp

iTraxx X-Over

273bp, +5.9bp

🇩🇪 10 Yr Bund

0.47%, -6bp

iBoxx Corp IG

B+130.6bp, +1bp

iBoxx Corp HY

B+385.6bp, +9bp

🇺🇸 10 Yr US T-Bond

3.04%, -1bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Mamma mia… routed…

The markets were well-shaken out of their complacency during a torrid final session of the third quarter. Up until that point (just about), the markets had managed to swat aside the many potential banana skins which had come their way. They have learned to live with Trump, good levels of economic growth in the US have boosted sentiment and helped US equities to record levels, while Turkey succumbed to an orthodox economic policy response to help support its currency.

Events were rumbling for a few days around the Italian budget with rumours of the resignation of the technocratic finance minister before finally we had the populist parties make good on some of their (election) promises. As the fiscal sluice gates opened, the market fretted. And a decent/good month for risk assets turned into a flat/poor one.

At the worst point, Italian stocks fell by around 5% (closed 3.4% lower), the DAX stumbled and then tumbled by as much as 1.8% (ended 1.5% down), BTPs were hammered  (10-year yield rose as much as 37bp) while safe-havens alone were in the ascendancy.

So the markets were feeling soggy and some would suggest that, in reality, they will settle – as it is just an Italian problem. Unfortunately, these events can sometimes spiral out of control – and it might not be only an “Italian problem” for too much longer. The EU will be watching.

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27th September 2018

September squeezed dry

MARKET CLOSE:
iTraxx Main

67.1bp, -0.4bp

iTraxx X-Over

267.1bp, -1.4bp

🇩🇪 10 Yr Bund

0.53%, unchanged

iBoxx Corp IG

B+129.4bp, unchanged

iBoxx Corp HY

B+376.3bp, +0.5bp

🇺🇸 10 Yr US T-Bond

3.07%, unchanged

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Issuance run ends, for good reason…

We had a quieter session on Thursday and it looks like there could be a premature end to the month’s activity. It’s been an excellent one, to be fair. But it was still a bit of a surprise – given that we were all guns blazing and ignoring the potential for event-risk to stop the party. That said, we concede that it was probably no bad thing that the primary market was less effusive because it allows the heavy load of recent new issues to be absorbed. After all, we have had €10bn of IG non-financial issuance in just three sessions this week. The month is now the best of the year so far with €33bn in the bag.

Importantly, any potential for investor indigestion brought on by a deal overload will have been prevented.

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26th September 2018

Telephone numbers

MARKET CLOSE:
iTraxx Main

67.5bp, -2bp

iTraxx X-Over

268.5bp, -2.7bp

🇩🇪 10 Yr Bund

0.53%, -1bp

iBoxx Corp IG

B+129.4bp, unchanged

iBoxx Corp HY

B+375.7bp, +1.3bp

🇺🇸 10 Yr US T-Bond

3.09%, -1bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Credits’ September love-in…

It’s going as swimmingly as can be for the corporate bond market right now. It’s been a while since we have managed to trade through a period so well. We have new issues aplenty going some way towards satiating the need for cash-rich corporate bond investor portfolio investors to get their booty invested before year-end. There is an understanding that deals are going to be priced cheaply at the initial phase of the marketing, and then rammed tighter into the final pricing. Few are being deterred.

New deals are performing well in most cases on the break. And secondary is better bid for choice. The puzzle, for now, has been solved.

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25th September 2018

Credit primary not waiting for the Fed

MARKET CLOSE:
iTraxx Main

69.5bp, -0.2bp

iTraxx X-Over

271.2bp, +1.1bp

🇩🇪 10 Yr Bund

0.54%, +3bp

iBoxx Corp IG

B+129.3bp, -0.1bp

iBoxx Corp HY

B+374.3bp, -2bp

🇺🇸 10 Yr US T-Bond

3.10%, +2bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

FOMC and 25bp up next…

After an indifferent opening in Europe, we managed to hold a little higher amid little material news flow that ought to have suggested we should hit the ball out of the park. The previously mentioned event risk situations continue to lurk (China/US, EM, Turkey, Italy, Brexit), but with the headlines proffering nothing new, the markets managed a slightly better feel about them. Risk on or off though elsewhere, the new issue market was always going to be a bright spot though – for the credit market.

We were not to be disappointed with deals galore across the SSA, covered and corporate bond markets to help absorb the bulging investor cash balances. September is turning into a very good month for the new issue corporate bond market.

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24th September 2018

Ruby Tuesday

MARKET CLOSE:
iTraxx Main

69.7bp, +1.4bp

iTraxx X-Over

270.1bp, +5.5bp

🇩🇪 10 Yr Bund

0.51%, +5bp

iBoxx Corp IG

B+129.4bp, unchanged

iBoxx Corp HY

B+376.2bp, -3.5bp

🇺🇸 10 Yr US T-Bond

3.08%, +2bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Cautious start to the week…

The market’s positive momentum of last week was checked as trade tensions rose with the US imposing tariffs on $200bn of Chinese goods and China broke off from further talks. There might have been moderate weakness in both equities and government bond markets during the opening session of the week, but it wasn’t going to deter primary market deals, and especially the much-touted acquisition finance multi-tranche Abbot Laboratories deal.

Others were in the market too and several new mandates were dished out promising a decent final quarter for the primary corporate bond market. And it looks like we are going to have a fairly heavy week of issuance with Vodafone looking to print in hybrid format on Wednesday.

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22nd September 2018

Some defiance at last!

MARKET CLOSE:
iTraxx Main

68.3bp, +0.4bp

iTraxx X-Over

264.6bp, -1.5bp

🇩🇪 10 Yr Bund

0.46%, -2bp

iBoxx Corp IG

B+129.4bp, -0.5bp

iBoxx Corp HY

B+379.7bp, +0.4bp

🇺🇸 10 Yr US T-Bond

3.07%, unchanged

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

20-30bp is the new 10-15bp…

That was a good second half of the week and gives us a platform to rescue performance as we close in on the end of this month. Fresh record-high stocks in the US were the principal take away, but we in the corporate bond markets will be feeling relieved that the supply situation has perked up. And the information ratio we have managed to obtain as a result will have us in better spirits as we enter the final quarter of 2018. The markets might have had a super week, but the macro outlook – away from the US – remains difficult and isn’t showing signs of stabilising.

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20th September 2018

The future is bright for credit

MARKET CLOSE:
iTraxx Main

67.9bp

iTraxx X-Over

266bp

🇩🇪 10 Yr Bund

0.48%, -1bp

iBoxx Corp IG

B+129.8bp, -0.5bp

iBoxx Corp HY

B+379.2bp, -0.8bp

🇺🇸 10 Yr US T-Bond

3.07%, -1bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Scene set for a squeeze in spreads…

Could it be that credit spreads are set for a squeeze tighter through the remaining months of this year? One of the features of the supply seen this month is that books have been oversubscribed by a considerable margin, and deals have been able to be priced tighter by more than the average seen previously this year. The clamour for non-financial IG corporate risk from investors has come about because there hasn’t been the usual level of issuance – we’re well below the average levels seen in the past five years. But also, investor cash balances are at extremely high levels and need a home – quickly.

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19th September 2018

Fixed income feels the chill

MARKET CLOSE:
iTraxx Main

60bp, +0.4bp

iTraxx X-Over

280.2bp, +0.4bp

🇩🇪 10 Yr Bund

0.48%, unchanged

iBoxx Corp IG

B+130.3bp, -1bp

iBoxx Corp HY

B+380bp, -3bp

🇺🇸 10 Yr US T-Bond

3.07%, +2bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Rates are the story…

The only market bursting out of the blocks is the rates one, that is, with yields heading higher and close to setting the highs for the year in the US (10-year), while the 10-year Bund yield up at close to 0.50% is still 27bp short of its highest level for 2018. The direction of travel for both markets at the moment is the same – higher in yield terms. There might be trouble ahead for emerging market borrowers as higher rates feed into higher refinancing costs against a more difficult economic backdrop once those higher tariffs start to bite.

So a more hawkish policy by the Fed is now feeding into rates and everything is being dragged higher with rising US Treasury yields. Ten year Gilt yields were up at 1.61% (+4bp) and are just 4bp shy of the previous high for 2018. The more conciliatory words from the EU about a deal on Brexit of late may have helped market confidence in the UK, too (reduced the bid for safe-haven Gilts), although UK equities have failed to get much of a boost (up by around 0.4% in the session).

We still think that Bund yields are most unlikely to get too much past 0.60% this year in the 10-year (0.48%, unchanged), while US Treasury yields are unlikely going to see much higher than 3.25% before the year is out (now 3.07%, +2bp). There are still many uncertainties on the geopolitical/economic front still, and they ought to cap how far the sell-off in government bonds might go.

For sure, rate market total returns this year are going to be negative (in the -0.5% to -2% area for Eurozone govvies), while credit returns are also going to be affected by any weakness in rates – likely keeping IG and HY credit in the 0% to -1% area (euro denominated markets).

Sterling credit total returns are going to fare much worse given the longer duration of the market and that relatively more aggressive sell-off in the Gilt market. Total returns exceeding -2% to -3% are quite possible – they’re already -1.9% YTD.

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18th September 2018

One hand giveth…

MARKET CLOSE:
iTraxx Main

59.5bp, -0.8bp

iTraxx X-Over

279.8bp, -2bp

🇩🇪 10 Yr Bund

0.48%, +2bp

iBoxx Corp IG

B+131.5bp, -1bp

iBoxx Corp HY

B+383bp, -3bp

🇺🇸 10 Yr US T-Bond

3.04%, +5bp

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

The other taketh away…

Deals galore littered the primary markets in one of the heaviest sessions for a while – most likely this year so far in terms of the number of issuers. There was SSA issuance, covered bonds, IG and HY corporates, senior and subordinated financials and in dollars, euros and sterling currencies. So we worked through a busy session. IG non-financial deal flow, though, was limited to Vinci and DP World. The drought goes on here. The deluge of deals elsewhere was probably a useful distraction, but we do need a material pick-up in non-financial deals to satiate investor needs.

The low single-A rated French construction giant is a relatively infrequent borrower, but investors in the largest sector of the corporate bond market were left with slim pickings otherwise, and as if to highlight the desperate nature of the limited supply in IG corporates, the book for the Vinci dual-tranche deal exceeded €7bn. It was a good deal for Vinci though, after all they managed to reduce final pricing by up 20-22bp.

We are fast closing in on the final few sessions of the month and we have a Fed meeting to come which will likely close funding windows for a session or so. Add into that the “ECB QE purchase programme is reduced further from October by 50%, so let’s get a deal away before that occurs” marketing ploy, we had ought to see a more material pick-up in the non-financial supply dynamics. We think.

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17th September 2018

Indian summer

MARKET CLOSE:
iTraxx Main

60.3bp, +0.8bp

iTraxx X-Over

281.8bp, +0.8bp

🇩🇪 10 Yr Bund

0.46%, +2bp

iBoxx Corp IG

B+132.5bp, -0.7bp

iBoxx Corp HY

B+390.3bp, -4bp

🇺🇸 10 Yr US T-Bond

2.99%, unchanged

🇬🇧 FTSE 100

6176.19, ERROR
🇩🇪 DAX

12799.97, +166.26
🇺🇸 S&P 500

3185.04, ERROR

Taking stock…

We’re just past the halfway stage of the month and, having manoeuvred a few bumps and scrapes, the market is holding relatively well. All eyes, as usual, have been on the US and their domestic economy is powering ahead. The economic storm clouds have threatened elsewhere but the bellwether S&P is clinging on to 2,900 – dipping in and out of ‘the number’ this month and just a shade (a trading session) away perhaps from setting a new record high for the index. Likewise, the Dow is on the up too – having lagged the S&P, it is now less than just 2% from achieving the same record feat.

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