Archive

Monthly Archives: November 2019

27th November 2019

Thanksgiving flourish

MARKET CLOSE:
iTraxx Main

47.7bp, unchanged

iTraxx X-Over

223.3bp, -3.7bp

🇩🇪 10 Yr Bund

-0.37%, unchanged

iBoxx Corp IG

B+115.3bp, -0.5bp

iBoxx Corp HY

B+389bp, -4bp

🇺🇸 10 Yr US T-Bond

1.77%, +3bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Not bad AT all…

That was a decent blast of pre-Thanksgiving deals as the market made a sterling effort on Wednesday, and all the signs are that we’ll possibly get a good stream of issuance still next week, before we finally close down for the end of year. The pipeline might look more sparse at the moment, but there should still be a couple of weeks worth of business left in 2019.

We think that a busy early December is not impossible. Right now, we’re closing out November with IG spreads just a touch wider for choice and monthly returns very slightly negative, but still up at 6.4% for the year (Market iBoxx index). Not bad. High yield spreads are 130bp tighter this year – and returns up at 9.4%. Not bad, either. Still, they’ve all been left in the shade by an AT1 market squeezed with spreads 270bp tighter for the year, and total returns up at a stunning 14.3%.

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25th November 2019

Solid primary

MARKET CLOSE:
iTraxx Main

48.3bp, -1.6bp

iTraxx X-Over

228.6bp, -5.9bp

🇩🇪 10 Yr Bund

-0.35%, unchanged

iBoxx Corp IG

B+117bp, -1bp

iBoxx Corp HY

B+399bp, -4bp

🇺🇸 10 Yr US T-Bond

1.76%, -2bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Good news line up…

This much curtailed week (Thanksgiving, Black Friday) got off to a fine start and there is little reason to believe that we won’t stay in a positive mood over the next couple of sessions. Markets have chosen to be upbeat (again) on the trade talks, while the pro-democracy councillors’ huge success in local elections in Hong Kong will give rise to hopes that the authorities might yield much ground on the pro-democracy movements’ expectations.

In the UK, we now have all the election manifestos out and we believe (as do the polls) that we have the non-trivial prospect of a majority for the Conservative Party which then gives the markets reduced levels of uncertainty through the Brexit expectations. Sterling rose, the FTSE rose and even Gilts were slightly better bid.

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23rd November 2019

Looking to close out

MARKET CLOSE:
iTraxx Main

49.9bp, +0.2bp

iTraxx X-Over

234.5bp, +0.5bp

🇩🇪 10 Yr Bund

-0.36%, -4bp

iBoxx Corp IG

B+118bp, unchanged

iBoxx Corp HY

B+404bp, unchanged

🇺🇸 10 Yr US T-Bond

1.76%, -1bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

China playing the long game…

We should probably start to be thinking in terms of there being ‘no trade deal’ anytime soon. There are many reasons why the Chinese (and the US) ought to agree to one. However, in doing so, it would possibly mean the inevitable shoo-in for Trump who would milk it into a second term, but serve more angst down the line as trade deals elsewhere come under greater scrutiny.

Stretching out the current talks for up to another 12 months (US elections due) might be seen as being bit of an ask, but we just need to cast an eye on those Brexit negotiations which have been ongoing for over three years! If little gets agreed over the next, say, six months then the Chinese negotiators will increasingly gain the upper hand. China can afford to play the long game.

The waters are further muddied by the impeachment hearings – and the potential outcome, as well the Hong Kong rights bill which is expected to be signed in the next week. For markets, we should get used to trading the headline risks and associated volatility, amid weakness in macro as tariffs are duly slapped on Chinese imports to the US.

That volatility will principally take through equity markets, rates will stay around these levels at worst – or yields go lower for choice, and credit spreads will tread water. For credit, high beta risk has been outperforming of late, possibly on the back of the heavy supply burden IG investors are carrying.

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20th November 2019

Tariffs and impeachment weigh on market

MARKET CLOSE:
iTraxx Main

50.1bp, +0.7bp

iTraxx X-Over

235.4bp, +2.4bp

🇩🇪 10 Yr Bund

-0.35%, -1.5bp

iBoxx Corp IG

B+117bp, +2bp

iBoxx Corp HY

B+403bp, +2.5bp

🇺🇸 10 Yr US T-Bond

1.74%, -4bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Optimism ebbs and flows…

The murky trade outlook put the kybosh on the markets midweek. The sentiment wasn’t helped by the very weak producer price inflation numbers in Germany for October. Equities lurched lower at the open in Europe and rates were having as good a day they’ve had in several weeks. There’s no panic, yet, but markets appear to be highly strung and extremely sensitive to any trade-related news flow (or lack of it).

Credit spreads edged wider again amid limited levels of secondary market activity, but it appears that the heavy primary activity is weighing on IG spreads. During the session, we had those multi-tranche deals on the screens from EssilorLuxoticca and Fresenius. That meant the €300bn level of annual issuance was exceeded (now €304bn YTD) for the first time for IG non-financial issuance in the euro-denominated corporate bond market.

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19th November 2019

One last push

MARKET CLOSE:
iTraxx Main

49.4bp, +0.6bp

iTraxx X-Over

233.1bp, +0.8bp

🇩🇪 10 Yr Bund

-0.34%, unchanged

iBoxx Corp IG

B+115bp, +0.8bp

iBoxx Corp HY

B+400bp, unchanged

🇺🇸 10 Yr US T-Bond

1.79%, -2bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

No let up in primary markets…

It’s beginning to look like we are having one last major push to get business done before we close out for the year. The push can go on for a few weeks! Equities started on a high, but for no obvious reason – and faded the gains, rates didn’t too much though (perhaps better bid) while credit investors were faced with a mass of deals in a very busy session.

Never mind that annual records have already been broken (IG non-financials) even as secondary is just beginning to leak wider and as the ECB is busy lifting the market. This is about getting risk on board.

Borrowers (for one) are not holding back. Just three weeks ago we were far away enough from the record for HY issuance (needing some €15bn to get done) that any notion we might get there was for the fairies. We are now less than €5bn of deals away. It has been an extraordinary month in credit primary.

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18th November 2019

It’s all good, but…

MARKET CLOSE:
iTraxx Main

48.8bp, unchanged

iTraxx X-Over

232.3bp, unchanged

🇩🇪 10 Yr Bund

-0.34%, -1bp

iBoxx Corp IG

B+114.2bp, +0.7bp

iBoxx Corp HY

B+400bp, unchanged

🇺🇸 10 Yr US T-Bond

1.81%, -3bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

… it will pay to be wary

There’s stuff getting on but it appears that the markets are relatively bulletproof as they manoeuvre  Hong Kong, ECB QE, Brexit, Trump’s impeachment hearings and so on. It’s not quite a yawn, but that list of imponderables isn’t promoting a more bearish market, which might be seen as a bit of a worry – because something might be about to blindside us.

It seems like markets are hanging on for a few more weeks before investors can clock-out for 2019 having recorded some unbelievably fantastic performance. Equities, rates, credit have all done phenomenally well which in itself is most unusual, although reconciled by the fact that these are not normal times in macro, allowing most types of investors to benefit from the mass market manipulation resulting from central bank policy over the years.

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17th November 2019

Credit ticks all the boxes

MARKET CLOSE:
iTraxx Main

48.9bp, -1bp

iTraxx X-Over

235.2bp, -6.2bp

🇩🇪 10 Yr Bund

-0.34%, unchanged

iBoxx Corp IG

B+113.5bp, +1bp

iBoxx Corp HY

B+399bp, +1.5bp

🇺🇸 10 Yr US T-Bond

183.5%, +1.5bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Half time report…

We’re at the halfway stage of the month, and it’s fair to say that credit markets have held up fairly well despite the (largely) trade-related unease which, at times, has been affecting equities. Despite general weakness in credit markets in the past week, IG spreads are unchanged this month, while the high yield market is tighter (iBoxx index, -8bp).

We have seen some widening in spreads in the CoCo market (index +11bp) but having tightened by almost 250bp already this year, we can forgive some moderate levels of weakness, especially where year to date total returns exceed 14%. We think all that represents a clean bill of health for the corporate bond market. Lest we forget, IG non-financial issuance has topped €16bn and we have absorbed almost €11bn of HY rated debt already this month.

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14th November 2019

Macro skating on thin ice

MARKET CLOSE:
iTraxx Main

49.8bp, +0.2bp

iTraxx X-Over

238.7bp, +2.9bp

🇩🇪 10 Yr Bund

-0.35%, -5bp

iBoxx Corp IG

B+112.5bp, +1.25bp

iBoxx Corp HY

B+397.5bp, +5bp

🇺🇸 10 Yr US T-Bond

1.81%, -6bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

China’s triple whammy warning…

Giveth with one hand and whippeth away with the other. Germany defied expectations with a surprising albeit preliminary positive print (+0.1%) for Q3 GDP growth, thereby managing to dodge a technical recession. Few will have rejoiced given that they’re stagnating and the outlook doesn’t look great.

Before that, China reported that her industrial production rose just 4.7% year-on-year in October against expectations pitched at 5.4%, while fixed asset investment rose by 5.2% – the lowest level since records started. A thoroughly miserable set of data was rounded off as Chinese retail sales growth for October also missed.

Perhaps more important for near term market performance is a trade deal announcement and, if it ever comes, it will only serve to stem the rate of decline in the macroeconomic outlook. The rest is all noise. Equities are gyrating to the news flow, which is usually enmeshed in a Trump tweet or some other official either from the US or China suggesting a phase one deal is imminent.

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12th November 2019

Time to count one’s chickens

MARKET CLOSE:
iTraxx Main

48.1bp, -0.6bp

iTraxx X-Over

230bp, -0.5bp

🇩🇪 10 Yr Bund

-0.25%, unchanged

iBoxx Corp IG

B+110bp, unchanged

iBoxx Corp HY

B+386bp, unchanged

🇺🇸 10 Yr US T-Bond

1.94%, unchanged

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Christmas might have come early…

It wasn’t the easiest session to figure out and trade through – until the US opened anyway. The violent scenes in Hong Kong previously, developments in the UK election, needing to think about the German Q3 GDP print due later this week and some apprehension (again) around the US/China/Europe trade tariff situation all saw to that.

It would have been easier, for credit investors anyway, had we seen a significantly busier primary market. Nevertheless and while an end of year feel is beginning to emerge, we still set fresh record highs in US equities. There was an uplift to European equity and credit markets, while rates were once again better offered for choice. That’s becoming all too often a case.

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10th November 2019

Buy the dip opportunity

MARKET CLOSE:
iTraxx Main

49.2bp, +0.9bp

iTraxx X-Over

233.8bp, +2.5bp

🇩🇪 10 Yr Bund

-0.26%, -2bp

iBoxx Corp IG

B+109.4bp, +0.5bp

iBoxx Corp HY

B+385bp, +2bp

🇺🇸 10 Yr US T-Bond

1.94%, +1bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Keep believing, for now…

The sell-off in the underlying has presented credit market investors with a near-term buying opportunity. It will keep spreads supported into year-end, although we are likely going to see an impact on total returns in low beta sectors of the credit market. No sweat. Given where the numbers are in credit so far this year, there is enough of a buffer to ensure that we close out far in excess of the pitch made to investors when we started the year. 6.2% total return in IG (iBoxx)? Not bad at all. 14% from the AT1 market – that’s excellent. And what about 9.1% in a high yield market that was supposed to feel the pressure from macro weakness? We think that there is a little more upside to those numbers to be had before we close up in 2019.

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