Archive

Monthly Archives: July 2020

23rd July 2020

🌬️ Headwinds, but we’re working through them

We shall overcome… In credit, there isn’t too much going on, save for a gentle squeeze taking IG spreads back to levels last seen in early March, taking in a 21bp tightening so far in July. The recovery in the high yield market is a little more circumspect – which is understandable, but with the […]
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16th July 2020

💧 Market Liquidity, My Friend, is Your Friend

Beginning to see the light… The S&P is now dipping in and out of the black for 2020. The bank earnings season is off to a flyer, markets basking in a brighter than anticipated start to the season as the big US banks deliver. While a cautious tone persists generally on the medium-term outlook, markets […]
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14th July 2020

🔭 Looking Beyond the Earnings Season

Autumnal riches might be out of reach… The mood music keeps on changing. And it’s an unpredictable daily playlist. If we believed the equity markets for much of Monday, then the outlook was bright. That includes an earnings season which is going to be as bad as one might imagine it to be, but it […]
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12th July 2020

💲 ‘Tis the Season

Earnings season, what else?… The US banks are going to kick us off ‘proper’ on Tuesday for this Q2 earnings season with JP Morgan, Citi and Wells Fargo out of the blocks. The reported numbers generally will have been ravaged by the coronavirus-related lockdowns – and we know they won’t be good. Netflix though will […]
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9th July 2020

🗞️ Enough is enough

Primary pace couldn’t just go on and on… It’s not quite the cocksure market we thought it could have been. Credit primary was threatening a pre-earnings blackout-period deluge, but it hasn’t quite arrived. We are at a lower level of deal flow dynamic but ought to see €20bn or so of IG non-financial issuance (around […]
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7th July 2020

💷 HY Strategy Portfolio: 10%+ Profit in Under 3 Months

Market Overview

It’s very early days with a mixed start to the second half, but the key takeaway is that markets can continue to move higher. Economies are generally back in business. In some cases, further policy stimulus is coming, consumer confidence and industrial sentiment are recovering, while manufacturing and service sector activity hauls itself off the floor. It’s been a deep recession but also a ‘V’ recovery to start with.

The risks are clear, though. We have an earnings season coming up which isn’t going to be a good one, virus second waves are in evidence across several jurisdictions, and the US promises a more disjointed recovery as a result. China is being a nuisance in several key areas although it has pulled back (for now) in its confrontation on the disputed border with India.

In credit specifically, however, we are in the midst of a record run-rate in IG issuance, where Q2 saw €50bn or more issued in each of the months – the first time in Eurobond history. Few treasury desks are taking chances of something more sinister later in the year.

At €268bn of IG non-financial issuance year to date, we should be past the record €318bn from last year by the end of September – en route, quite possibly, to €400bn for the full-year.

The high yield market has finally plugged into the narrative. In a 6-week period from late February and taking in the whole of March, we didn’t get a single deal. But the primary machinery has started to churn them out now, with €13bn issued in June and July off to a decent start (€3.4bn).

And the pipeline builds. Last year’s full-year record total of €76.4bn looks like being surpassed IF risk markets don’t fall out of bed between now and year-end.

So the appetite for HY paper is recovering as the overall news flow improves. Low rates ‘forever’ and the ECB’s recent increased QE-related purchases have turned the screw. There’s a subliminal message in there somewhere. The crowding-out effect (in IG) will reinvigorate that bid for higher-yielding corporate debt.

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5th July 2020

🗞️ Plugging into the (initial V-shaped) recovery

As IG primary records broken… The bounce in economic activity (from the early 2020 Q2-lows) will likely continue with a broadly positive trend in asset prices over the summer months. We could still be looking at the potential for US stocks to rise and get close to those record highs seen in February before the […]
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2nd July 2020

🗞️ Yield sells

But all eyes on China… The second half has got off to a promising start. The data is supportive and the main driver for it. Credit primary continues to furnish us with a plethora of deals and the pipeline suggests deals to come throughout a busy July. Covid19 outbreaks and subsequent localised lockdowns are going to […]
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