Daily Archives: 16th January 2020

16th January 2020

🗞️ 2020’s credit outlook brightening

iTraxx Main

43.3bp, -0.3bp

iTraxx X-Over

207.8bp, -1.7bp

🇩🇪 10 Yr Bund

-0.22%, -1.5bp

iBoxx Corp IG

B+104.8bp, -0.7bp

iBoxx Corp HY

B+338.6bp, -2bp

🇺🇸 10 Yr US T-Bond

1.81%, +2.5bp

🇬🇧 FTSE 100

7042.47, (+0.35%)
🇩🇪 DAX

12774.88, (-0.12%)
🇺🇸 S&P 500

3116.39, (+0.32%)

Financials and high beta credit hold the aces…

Given the solid start to the banking sector’s Q4 reporting season, it does appear that we are potentially set up for the financial sector to lead the rally in stocks and credit in 2020. That’s certainly how investors in credit are looking at it, with financials and high beta credit likely to deliver most of the performance this year. What’s to stop the juggernaut?

The ECB is active in the market, investors have high cash balances. Trump is being impeached and the markets have barely reacted while the previous Middle East tensions have also been shrugged off. Brexit is now old news. US stocks are hitting record highs almost daily, now up through 3,300 for the S&P.

So it is difficult not to be positive on credit and this dynamic seems like it will persist. How much of an ask is it, really, to think that we can revisit record lows in AT1 index spreads/yields? They were seen in January 2018, with the iBoxx index spread at B+287bp and the yield at 2.81%, which compares with B+376bp and 3.29%, respectively, now. We’re less than 100bp in spread and 50bp in yield away, so it is eminently likely we get there in this bid-only sector.

While we’re at it, what about iTraxx Main at 37bp and X-Over at 180bp at some stage? Anything more than that in X-Over and we will be looking at some serious compression between the two versus current metrics.

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