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27th February 2020

😷 Bond investors self-isolate

MARKET CLOSE:
iTraxx Main

57.0bp, +6.2bp

iTraxx X-Over

257.4bp, +22.6bp

🇩🇪 10 Yr Bund

-0.55%, -6bp

iBoxx Corp IG

B+115bp, +5bp

iBoxx Corp HY

B+399bp, +22bp

🇺🇸 10 Yr US T-Bond

1.28%, -3bp

🇬🇧 FTSE 100

5563.74, (-5.25%)
🇩🇪 DAX

9815.97, (+1.90%)
🇺🇸 S&P 500

2626.65, (+1.89%)

Markets shell-shocked…

Fear is writ large all over the markets. And the corporate bond market is now under the same pressure as equities, as the global risk asset bubble deflates amid the coronavirus pandemic.

The bid side of the market has pulled right back and the already meagre flows in secondary have dwindled further, with sellers unable a get a decent price for any reasonable exit. That particular trading dynamic is understandably expected.

We suggest taking the current medical advice. That is, it’s time for corporate bond investors to self-isolate and quarantine positions until market volatility subsides. The best one can do here is to add some protection and sit out the market carnage.

IG spreads – iBoxx index – are a massive 15bp wider this week. The hitherto darling of the corporate bond market, in performance terms anyway, has been bullied out of its complacency. The AT1 index has recoiled by 95bp this week and the high yield index some 71bp. And there’s still a session to go. Illiquidity brings out the worst in valuations.

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