Archive

Monthly Archives: March 2019

5th March 2019

No respite in corporate primary

MARKET CLOSE:
iTraxx Main

60.8bp, -0.3bp

iTraxx X-Over

275bp, +0.4bp

🇩🇪 10 Yr Bund

0.16%, unchanged

iBoxx Corp IG

B+144.5bp, unchanged

iBoxx Corp HY

B+440bp, -2.6bp

🇺🇸 10 Yr US T-Bond

2.74%, +1bp

🇬🇧 FTSE 100

7382.01, (-0.58%)
🇩🇪 DAX

13681.19, (-0.75%)
🇺🇸 S&P 500

3370.29, (-0.39%)

Risk market hold their nerve…

A forced break from the recent upward momentum in the markets came courtesy of the (not unexpected) news that China officially forecast slowing growth this year. No longer ‘around 6.5%’ – as they reduced their expectation to between 6 – 6.5% – was enough to have us take a breather. That came as official data saw the Chinese economy record the slowest service growth in 4 months in February and while the manufacturing sector offered some improvement it is still in contraction territory.

Add in Trump revoking India and Turkey’s preferential trade status’ and we are reminded that this year’s gains in risk assets come with warnings as to their sustainability.  So far, we view them as having given us a buffer in which to defend a positive returns result come year end (in credit anyway).

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4th March 2019

Nobody can stop the music

MARKET CLOSE:
iTraxx Main

61.1bp, -1.4bp

iTraxx X-Over

274.6bp, -5.1bp

🇩🇪 10 Yr Bund

0.16%, -3bp

iBoxx Corp IG

B+144.4bp, -0.6bp

iBoxx Corp HY

B+442.6bp, -1.6bp

🇺🇸 10 Yr US T-Bond

2.73%, -3bp

🇬🇧 FTSE 100

7382.01, (-0.58%)
🇩🇪 DAX

13681.19, (-0.75%)
🇺🇸 S&P 500

3370.29, (-0.39%)

Just can’t get enough…

Corporate bond markets were off to a flying start for the week with that €7bn, six-tranche deal from Medtronic leading the way, and pushing US corporate borrower activity in the euro-denominated IG non-financial market this year to a massive 40% of the total. Medtronic was in good company, as it trumped the deals already offered by the likes of Coca-Cola, Altria and IBM, with the US entity deal flow totalling almost €25bn this year.

Interestingly, the last fourteen tranches of deals in the euro-denominated IG non-financial market have come from borrowers with operations primarily based in the USA.

The generally higher levels of issuance are coming because confidence in risk markets is high (€61bn IG non-financial debt pointed already this year) and spreads are tightening on the break for new transactions. And the secondary market is squeezing, returns (IG) sit at 2% YTD with a ‘low rates for longer’ expectation fixed income’s calling card for Q1 – and most likely for Q2.

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4th March 2019

European Banks: Never a Dull Moment | Bank Capital Insights

They come in threes…

First, it was Danske. Then came Swedbank, followed by Nordea. Suddenly, the money laundering scandal issue is starting to look systemic in the Scandinavian banking system. All three banks are very well capitalised and hence in a good position to absorb any large settlement/remedial costs.

But the impact on earnings is likely to be substantial and the uncertainty means modelling any earnings estimates likely to be very difficult.

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2nd March 2019

Goldilocks? She never left us

MARKET CLOSE:
iTraxx Main

62.5bp, +1.3bp

iTraxx X-Over

279.7bp, +3.7bp

🇩🇪 10 Yr Bund

0.19%, +1bp

iBoxx Corp IG

B+145bp, unchanged

iBoxx Corp HY

B+444bp, -4bp

🇺🇸 10 Yr US T-Bond

2.76%, +3bp

🇬🇧 FTSE 100

7382.01, (-0.58%)
🇩🇪 DAX

13681.19, (-0.75%)
🇺🇸 S&P 500

3370.29, (-0.39%)

Needles and haystacks…

The markets want to rally. The opening session of the month greeted us with equities shooting higher courtesy of weighting changes which gave Chinese stocks a greater share of the MSCI emerging market index. That gave a boost to global stocks from the start, although better-than-expected retail sales gains in Germany in January were seen as another reason for hope on macro. Also, weaker US data later supported the view that rates won’t be going higher anytime soon.

The good news in that was enough to get March off to a flying start and sustain the momentum of the previous two months which had seen some excellent performance being recorded across all asset classes. No fear, then. We could be lining up for a good March and solid opening quarter.

On the flip side, however, youth unemployment in Italy rose to more than that in Spain (to a massive 33%) suggesting that the fuse is burning a little faster for the Italian economy/politics, while both Italian and Spanish manufacturing activity slipped to their lowest levels in five years according to the latest PMIs. Core inflation dropped to 1% in February from 1.1% across the Eurozone.

In addition, we had some weaker than expected data from the US on personal spending (-0.5% MoM in December) and income (-0.1% in January versus -0.3% in December). The Fed’s favoured measure of inflation measured through the PCE was unchanged at 1.9%.  Overall, the macro outlook is showing no let-up in its deterioration and this must be reflected – soon – in both policy and market levels.

In the corporate bond market, it’s about hoping for no cliff risk event – and to add as much higher beta risk as is reasonable and allowable portfolio limits given that the default/rating transmission and interest rates are supportive.

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