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Daily Archives: 18th September 2019

18th September 2019

Panic stations, but few worry

iTraxx Main

48.0bp, -0.5bp

iTraxx X-Over

247.0bp, -2.5bp

🇩🇪 10 Yr Bund

-0.51%, -4bp

iBoxx Corp IG

B+122bp, +2bp

iBoxx Corp HY

B+395bp, unchanged

🇺🇸 10 Yr US T-Bond

1.75%, -6bp

🇬🇧 FTSE 100

6026.94, (-1.27%)
🇩🇪 DAX

12591.68, (-0.54%)
🇺🇸 S&P 500

3349.16, (+0.22%)

…as borrowers flood the market

It almost seems like panic selling… of debt securities by corporates. It ought not to be the case (or viewed that way) because low funding costs are here to stay. However, it’s rational that corporates are in the market as they can, in many cases, borrow easily and be paid to do so – just as Glaxo’s front-end €2.5bn grab demonstrated earlier this week. The drivers are obvious and made possible by the plummeting in funding costs this year. There’s a huge element of prefunding obligations which might not even come due until late next year or the year after. But the cash can also be used to buy back shares, boost P&L, increase EPS and prop-up share prices! And if it costs next to nothing – or nothing to issue, why not?

Admittedly, there’s a receptive investor base ‘panic’-buying the deals as they are offered. It’s got to be ECB-related as the deepest pockets in the market readies for action. As a result, we’re heading for the best month of issuance since 2014, and a record year for IG non-financial volumes. The follow-through into the high yield primary market – as yet – is missing, but that might come closer to/or after the purchase programme has commenced. Or when IG spreads have managed to crunch more from current levels.

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