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Daily Archives: 1st April 2019

1st April 2019

Fast out of the blocks

MARKET CLOSE:
iTraxx Main

62.3bp, -2.7bp

iTraxx X-Over

258.7bp, -10.2bp

🇩🇪 10 Yr Bund

-0.03%, +4bp

iBoxx Corp IG

B+137.2bp, -2.5bp

iBoxx Corp HY

B+428bp, -10.5bp

🇺🇸 10 Yr US T-Bond

2.48%, +7bp

🇬🇧 FTSE 100

6076.60, (-2.29%)
🇩🇪 DAX

11586.85, (-1.65%)
🇺🇸 S&P 500

3044.31, (+0.48%)

Mixed bag, risk on, good start…

The second quarter’s solid start was tempered only a little by the delivery of a mixed bag of economic data. The pick of the bunch took in Eurozone manufacturing which remains in the doldrums (German woes deepening), the UK factory sector has had a very good March because of Brexit (stockpiling) while the Caixin survey suggested that the Chinese manufacturing sector emerged from recession in March.

Core Eurozone inflation declined to 0.8% from 1% in the year to March in a worrying development. ECB action must be coming soon. Hopes that there might be a breakthrough on the US/Chinese trade talks though as ever continue to be the main catalyst for any material rise in risk asset prices. European equities came off the session highs, still rising by over 0.5% (or 1% in the case of the Dax), rate markets were in retreat and yields were edging higher – the 10-year Bund yield to -0.03% (!) and credit spreads were tightening into the better tone for risk assets.

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1st April 2019

(Free Content) HY Strategy Weekly

Index CCYFriday’s Close (29/03)1W Change
iShares EUR HY ETFEUR103.41.2
iTraxx CrossoverEUR269.5 bps-11.5bps

Overview

The sell-off on Friday (22/03/2019) was carried over into the beginning of the week just as we predicted in our inaugural HY Strategy Weekly last week and it looked like setting the agenda for spread direction. However, dovish remarks from ECB chairman Draghi about a potential tiered deposit rate for banks (which would significantly improve profitability) led to a significant bund rally and firmed HY credit sentiment.

Draghi: Comments sparked a rally

It still feels that HY investors are underinvested in the asset class. This is due to a number of factors that were discussed last week such as positioning at the beginning of year, lack of supply (compared to YTD last year) and significant outflows in 2018 followed by inflows in 2019.

This means that if there continues to be weak but stable growth, dovish central banks and benign inflationary pressures, it could provide an environment for ‘reach of yield’ strategy scenario in which single Bs lead the outperformance in HY.


HY Movers and Shakers

BORPLN (CCC+) fell -3pts lower after Q2 18/19 results on Weds (27/03) which disappointed significantly with net leverage increasing to 7.37x from 5.67x and EBITDA falling -24.1% however net debt was reduced to £570.0m from £788.7m.  Bonds fell a further -2pts on Thursday and Friday.

ALTICE/ATCNA (B/CCC+) gained +1pt on Thursday (28/03) after solid results especially as management reiterated its aims of reaching 4.25x leverage within 24 months with a mix of growth and disposals.

TCGLN (B): bonds are trading around 66.5/67.5 area with no further news about the full or partial airline disposal but we reiterate our negative note from last week (21/03) in which we suggest shorting the credit.

LOXAM (BB): As we (correctly) pointed out in our LOXAM trade idea on 24/03 the company called the LOXAM 7 22 and LOXAM 4.875 21 on the first call date (01/04/2019) and issued a 265M and 200M offering (road showing until 3 April 2019. 5Y CDS has continued to widened to 279bps.