Archive

Monthly Archives: October 2019

31st October 2019

Picking the last of the low hanging fruit

MARKET CLOSE:
iTraxx Main

51.7bp, +0.2bp

iTraxx X-Over

240bp, +3.3bp

🇩🇪 10 Yr Bund

-0.40%, -4bp

iBoxx Corp IG

B+113bp, unchanged

iBoxx Corp HY

B+407bp (+3bp)

🇺🇸 10 Yr US T-Bond

1.71%, -9bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Chapter 11…

The election season has kicked off in the UK, and in the US the Fed has cut rates for the third time this year with the jury out as to whether they will again in 2019. We still have slightly optimistic signals (limited truce?) coming from the US/China trade situation, with only the macro picture exhibiting weakness that might concern investors (or not) in November.

Nevertheless, it’s been a decent period for investors with a good recovery in risk markets over the past week especially, helping to prop up the excellent performance that most equities, rates and credit have managed to garner this year.

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29th October 2019

Finally!

MARKET CLOSE:
iTraxx Main

51bp, +0.8bp

iTraxx X-Over

232.5bp, +4.5bp

🇩🇪 10 Yr Bund

-0.35%, -2bp

iBoxx Corp IG

B+113bp, unchanged

iBoxx Corp HY

B+403bp, +1bp

🇺🇸 10 Yr US T-Bond

1.84%, -1bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Clarifying Brexit moment looms…

Investors will be hoping that this week trades out as well as it has started. The FOMC, US data deluge (earnings and key macro), Brexit/UK election and the US/China trade talks have thus far failed to dampen the mood. While that concoction of event-risk might be expected to have an impact on market direction affecting rates and equities especially, credit markets continue to slip through the net.

Spreads continue to grind tighter. The opening couple of sessions of the week already have primary pumping out deals and we are going to close out an excellent month for new deals. Demand remains elevated, the ECB QE is nigh, spreads are tightening, new deals are performing and investor confidence is high. Records beckon.

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27th October 2019

QE to preserve fixed income performance

MARKET CLOSE:
iTraxx Main

50bp, -1bp

iTraxx X-Over

226.8bp, -2.5bp

🇩🇪 10 Yr Bund

-0.37%, +3bp

iBoxx Corp IG

B+114.3bp, -1.4bp

iBoxx Corp HY

B+404bp, unchanged

🇺🇸 10 Yr US T-Bond

1.80%, +4bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

The damned sticky plaster…

It might appear fairly gloomy, but for fixed income we’re in decent shape to see a good run into year-end. The sell-off in rate markets in October has run its course. Meanwhile, Draghi has gone – leaving the Eurozone (as ever) on the brink of a deflationary spiral, struggling to generate any meaningful growth with the central bank clearly short on effective firepower. Lagarde is in – but running out of bullets, not that it is in any way going to deter her from trying more of the same, in a case of ‘not on my watch’. Unfortunately, the central bank has long been firing blanks. Poisoned chalice? Yes, it’s looking like the cycle is over.

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24th October 2019

November Promises Much

MARKET CLOSE:
iTraxx Main

51bp, +0.4bp

iTraxx X-Over

229.3bp, +2.1bp

🇩🇪 10 Yr Bund

-0.38%, +2bp

iBoxx Corp IG

B+115.7bp, -1bp

iBoxx Corp HY

B+404bp, +5bp

🇺🇸 10 Yr US T-Bond

1.75%, unchanged

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Not bad. Not bad at all…

There are still five session left in which to get business done before we close out a decent month for credit markets. Total returns in IG are very slightly negative, affected by the sell-off in the underlying this month, but spreads (iBoxx) are 10bp tighter so far. As if anyone needs a reminder, high beta credit has performed much, much better. The AT1 market is up by 1.3% in the month so far (+13.8% YTD on AT1 index spreads 265bp tighter) with the high yield market flat for the month in total return terms.

HY spreads are just 15bp tighter in October. Generally, we have continued to preserve performance in both absolute and spread terms. In addition, the clock ticks for the ECB’s intervention (Friday onwards) and we look for performance to improve on the back of it through to year-end, seeing out a fine 2019 for credit investors.

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23rd October 2019

Focus back on macro

MARKET CLOSE:
iTraxx Main

50.6bp, unchanged

iTraxx X-Over

227.2bp, +1.5bp

🇩🇪 10 Yr Bund

-0.40%, -3bp

iBoxx Corp IG

B+116.7bp, unchanged

iBoxx Corp HY

B+399bp, unchanged

🇺🇸 10 Yr US T-Bond

1.75%, -2bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

If only it were that simple…

An extension will be granted and we’re most likely heading for a general election. However, let’s not consume ourselves through November with Brexit. Time to move on.

November could be good for markets and, for the moment, credit markets have come to a standstill. Actually, most markets have. There is arguably a slightly better tone, if anything, to risk assets. As such, we have only moved moderately higher in equities these past few sessions, but more obviously tighter in credit amid little secondary activity, while government bond prices have started to claw back some gains as focus switches back to macro.

Of course, it’s gone all quiet on the US/China trade front with little news flow as to the current state of play in the negotiations. In credit, spreads are grinding tighter for choice, but there is nothing spectacular in this market happening right now. IG primary has slowed and become a little more hit and miss at the moment. Everything though might be about to change as we hone in on the resumption of the ECB’s QE purchases, due to begin from November 1.

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21st October 2019

Never-ending Brexit drama

MARKET CLOSE:
iTraxx Main

50.8bp, -1.6bp

iTraxx X-Over

225.8bp, -5.2bp

🇩🇪 10 Yr Bund

-0.35%, +4bp

iBoxx Corp IG

B+117.5bp, -0.5bp

iBoxx Corp HY

B+399bp (-4bp)

🇺🇸 10 Yr US T-Bond

1.78%, +3bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Give us a break…

It might have been a positive start to the week, but the Brexit-parliament shenanigans continue to hang over the market like the proverbial sword of Damocles. Once again, Parliament was denied a vote on the Brexit deal agreed between the UK and the EU. Nevertheless, even sterling assets held their ground, as the market probably still anticipates that PM Johnson will eventually get his deal through the House.

Sterling hovered just a few ticks below $1.30 (effectively unchanged in the session), Gilts were better offered (yields higher) and the FTSE underperformed (was flat) versus other sharply higher equity markets. We’d think that UK stocks will rally harder if a deal is passed. Credit markets were in good shape, spreads tighter and we added another €2.1bn in primary to the IG non-financial total, as this market heads for a record year.

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20th October 2019

Brexit’s final hurdle, Credit records to be broken

MARKET CLOSE:
iTraxx Main

52.3bp, -0.4bp

iTraxx X-Over

231bp, -2bp

🇩🇪 10 Yr Bund

-0.38%, +2bp

iBoxx Corp IG

B+118bp, -0.5bp

iBoxx Corp HY

B+403bp, unchanged

🇺🇸 10 Yr US T-Bond

1.75%, unchanged

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Magic Monday beckons…

Pffft. And so it goes on. STILL no definitive Brexit decision! A spoiler amendment to the legislation was passed, the meaningful vote pulled and the letters duly went off to the EU (not) requesting an extension. However, legislation proceeds this week to get us over the line by Halloween.. and we have the meaningful vote, still, delayed until on Monday, or possibly Tuesday. One couldn’t make it up.

Nevertheless, the odds are increasingly in favour that the vote passes finally, when it comes. In fact, the government has a matter of hours to find a dozen votes. And the markets should react positively in the immediate aftermath.

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17th October 2019

Super Saturday up next

MARKET CLOSE:
iTraxx Main

52.7bp, +0.2bp

iTraxx X-Over

233bp, +0.4bp

🇩🇪 10 Yr Bund

-0.40%, -1bp

iBoxx Corp IG

B+118.7bp, -1bp

iBoxx Corp HY

B+402bp, -2bp

🇺🇸 10 Yr US T-Bond

1.75%, unchanged

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

And we don’t mean the rugby…

Thursday’s session really was all about Brexit. Getting the agreed UK/EU deal over the line is what matters now. It looks like it is ‘this deal, or no deal’, after Juncker ruled out granting a further extension after October 31 – which is a big help for the UK government. It is thought to have wanted such a commitment.

The deal now needs to be ratified in the UK, where Parliament attempts to do so, sitting for only the fourth time on a Saturday in eighty years. It is not a foregone conclusion that they will ratify it, and a second referendum – on the deal – cannot be ruled out totally, as yet. It’s fair to say that while most are relieved that a deal has been agreed – we can argue as to whether it is better than the one agreed by the previous UK government – the markets appear to still be in limbo.

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16th October 2019

Return to sender

MARKET CLOSE:
iTraxx Main

52.5bp, -0.5bp

iTraxx X-Over

232.6bp, -4.4bp

🇩🇪 10 Yr Bund

-0.39%, +3bp

iBoxx Corp IG

B+119.7bp

iBoxx Corp HY

B+404bp, -5bp

🇺🇸 10 Yr US T-Bond

1.75%, -2bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Write a letter to the EU?…

Eurozone inflation dropped to 3-year lows in September, highlighting the predicament that the ECB has in trying to boost a slumping economy. CPI (at 0.8%) and core CPI (at 1.0%) both year on year, are far away from the ECB’s medium-term target levels. Brexit negotiations remained on a knife-edge as the UK (and the EU) struggled to get the DUP on board with the muted deal.

And so the markets effectively came to a standstill in this midweek session. Equities didn’t do too much. Rates were bid to start then better offered later. Secondary credit was flat to better bid, while primary market activity slowed markedly. With all that going on – or not as the case might be- we will have a look at this year’s euro-denominated primary markets in this note.

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15th October 2019

Just the tonic

MARKET CLOSE:
iTraxx Main

53.0bp, -2.2bp

iTraxx X-Over

237.0bp, -7.2bp

🇩🇪 10 Yr Bund

-0.42%, +3bp

iBoxx Corp IG

B+121bp, -1.5bp

iBoxx Corp HY

B+409bp, -4bp

🇺🇸 10 Yr US T-Bond

1.77%, +3bp

🇬🇧 FTSE 100

6292.65, (+1.83%)
🇩🇪 DAX

12930.98, (+1.84%)
🇺🇸 S&P 500

3226.56, (+0.92%)

Brexit becoming a reality…

Markets were not threatening to do too much amid ongoing apprehension around Brexit, the Middle East and the trade talks – until the afternoon session, and the US opening. And then we had a strong rally in risk assets, led (as usual) by equities and with a decent sell-off in safe havens. It was as if markets threw caution to the wind. Late into the afternoon, there was heightened hopes of a Brexit deal but we think that the receptivity to a mixed bag of reports on the US earnings stream in the session was also a driver.

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