Daily Archives: 26th March 2020

26th March 2020

🗞️ Great rally, but there should be more opportunities

iTraxx Main

85.4bp, -3bp

iTraxx X-Over

515.3bp, -15bp

🇩🇪 10 Yr Bund

-0.37%, -3bp

iBoxx Corp IG

B+256bp, unchanged

iBoxx Corp HY

B+804bp, -25bp

🇺🇸 10 Yr US T-Bond

0.83%, -3bp

🇬🇧 FTSE 100

6095.41, (+1.33%)
🇩🇪 DAX

12633.71, (+1.32%)
🇺🇸 S&P 500

3185.04, (+1.01%)

Better to be safe than sorry…

The opening of a window and ‘hey presto!’, there is no shortage of borrowers jumping through it, albeit paying up to get deals away. We don’t think that, perhaps down the line, it is going to be seen as a panic move even if the companies issuing do not have a liquidity problem and are unlikely going to have one.

We do, however, think that the issuance will be seen as a good opportunity to get some additional cash in, to beef up and maintain a conservative balance sheet and preserve ratings.

The same goes for investors. Buy in haste, repent at leisure? We are beginning to think maybe not. These primary market clearing prices are great levels coming after an extended period of being starved of decent spread through several years of low rates, and central bank manipulated markets. That’s still happening.

There has been a huge level of price discovery, too – an excuse to go out with wide indications and then ram the final pricing tighter. We’ve seen 20 – 60bp of tightening in the final pricing versus the initial guidance and books have been anywhere between 7 – 10x oversubscribed for many of the deals (22x for the Air Liquide deal on Thursday).

One will rarely pick the bottom of the market. Given the various Covid-19 trajectories in the US and Trump’s hitherto flailing response, there is a strong argument for erring on the side of caution.

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