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Daily Archives: 19th February 2020

19th February 2020

🗞️ A midweek flutter

iTraxx Main

41.5bp, -0.5bp

iTraxx X-Over

211.4bp, -2.6bp

🇩🇪 10 Yr Bund

-0.42%, -1bp

iBoxx Corp IG

B+100bp, unchanged

iBoxx Corp HY

B+337bp, -2bp

🇺🇸 10 Yr US T-Bond

1.57%, +1bp

🇬🇧 FTSE 100

6095.41, (+1.33%)
🇩🇪 DAX

12633.71, (+1.32%)
🇺🇸 S&P 500

3185.04, (+1.01%)

Credit, where it’s due…

The reported number of daily coronavirus cases/deaths slowed – and the markets rallied. The corporate earnings/revenues and macro economic data to come are going to paint a bleak picture for Q1, but that is for another day.

As things stand, the market reaction is going to be very limited (to the downside) because they are going to be furnished with oodles of cheaper liquidity.

In fact, all markets have traded on that expectation and the coronavirus has failed to dent the enthusiasm for risk assets. The anticipation of more and even cheaper liquidity has retained a level of buoyancy in risk markets beyond anyone’s expectations. That’s probably the salutary lesson of the post financial crisis 10-years.

Ten days left to month-end and the credit market has performed much better than expected. IG non-financial primary has sparked into life this month with this threatening to be the best February month of issuance since 2015 (issuance at €28.8bn month to date versus €40bn in 2015). Spreads have tightened by 5.5bp this month into it.

Demand in primary is at record highs as new year cash, new cash and redemptions all look for that higher yielding ‘safe-haven’ fixed income asset. The rally in the underlying has pushed total returns (iBoxx) to 1.25% for the year so far.

We think the high yield market is the one which has surprised, though. Issuance year to date is up at a stunning €20.6bn amid a splurge in issuance which saw €13bn issued in January and €7bn this month so far. The pipeline is looking fairly good too. That’s the story.

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