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Daily Archives: 4th February 2020

4th February 2020

🗞️ Growth down, credit firm

iTraxx Main

43.8bp, -1.9bp

iTraxx X-Over

217.5bp, -9.5bp

🇩🇪 10 Yr Bund

-0.41%, +2bp

iBoxx Corp IG

B+104bp, -1bp

iBoxx Corp HY

B+353bp, -8bp

🇺🇸 10 Yr US T-Bond

1.60%, +8bp

🇬🇧 FTSE 100

6104.72, (+1.14%)
🇩🇪 DAX

12660.25, (+0.47%)
🇺🇸 S&P 500

3327.77, (+0.62%)

And credit holds firm as volatility besets risk assets…

Amid much volatility into the deep sell-off last week, this week so far has seen a stellar recovery in risk markets. Equities are flying again and in most cases, bourses are back in the black for the year.

Rates are better offered, but we sense a more tentative investor, here in Europe anyway. Credit has become better bid again across the board and primary has re-opened with a flourish.

Credit markets, though, had not been spared the weakness besetting risk assets as a result of the coronavirus’ emergence. Corporate bond spreads are wider in all sectors except in the sterling and AT1 markets, this year. However, the rally in the underlying, safe haven risk-free government bond market has seen corporate bond yields (iBoxx index) crunch lower.

In fact, in most corporate bond sectors, index yields are declining despite that spread weakness (which has been moderate given the equity volatility). But only in the sterling, euro-denominated AT1 and non-financial corporate hybrid markets are yields close to their record lows – now just around 4bp, 35bp and 7bp off them, respectively.

So we have had a limited spread impact in sterling corporate credit and the CoCo market. The reasons are several. Few are going to sell CoCo because of the bid for anything which has a decent yield. Spreads are 20bp tighter.

It’s likely an overweight sector recommendation for this year for most portfolios. The bonds are like gold dust. And after last year’s 15%+ returns, it is still delivering this year (+1.4% in January).

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