Archive

Monthly Archives: September 2020

30th September 2020

🗞️ Q4: It won’t be getting any easier

MARKET CLOSE:
iTraxx Main

59bp, -1.4bp

iTraxx X-Over

345.2bp, -2bp

🇩🇪 10 Yr Bund

-0.51%, +4bp

iBoxx Corp IG

B+128.8bp, -1bp

iBoxx Corp HY

B+486bp, -3bp

🇺🇸 10 Yr US T-Bond

0.69%, +4bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Whichever way you look at it…

For the most part, it was a recovery quarter which at its peak saw the S&P achieve a record high. Markets gave much back as volatility rose, though. However, the S&P still put on 7% through it. That’s the benchmark. The Dax added 3.5% in Q3 while the FTSE lagged again, losing 4.6%. In European credit, IG total returns (iBoxx index) were up a solid 2% for Q3, the high yield market delivered 2.5% in the same period while the sterling credit markets returned 1.7%.

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29th September 2020

📈 Corporate bond markets – What crisis?

MARKET CLOSE:
iTraxx Main

60.4bp, +0.5bp

iTraxx X-Over

347.2bp, +0.4bp

🇩🇪 10 Yr Bund

-0.55%, -2bp

iBoxx Corp IG

B+130bp, unchanged

iBoxx Corp HY

B+489bp, -1bp

🇺🇸 10 Yr US T-Bond

0.64%, -2bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Just can’t get enough…

Monday was a dud for the credit market, upbeat as it was for equities. Nerves were back with us on Tuesday ahead of the first US presidential debate. However, it was a day when a record was broken, with IG non-financial issuance achieving new heights for any year, just nine months into 2020. Volumes shot past the €318bn record set last year – which itself was 20% higher than the previous best seen in 2016.

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27th September 2020

🗞️ Yo-yo markets here to stay

MARKET CLOSE:
iTraxx Main

61.5bp, -0.1bp

iTraxx X-Over

362.6bp, +5.8bp

🇩🇪 10 Yr Bund

0.52%, -1bp

iBoxx Corp IG

B+130bp, +2.5bp

iBoxx Corp HY

B+493.6bp, +11bp

🇺🇸 10 Yr US T-Bond

0.66%, unchanged

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Plenty to ponder…

There’s a wall of worry in front of us. The pandemic, lockdowns, the US election, social unrest across the US, uncertain macro, no visibility on the short-term economic outlook and the upcoming earnings season all represent reason for concern. Time to reduce risk, park up in cash and live to fight another day.

The problem is that some or all of the aforementioned can change, and quickly. We might get news or wind of a viable vaccine that will get markets rallying. There just might be a definitive US election result (the first debate this week will possibly give us a clue) and we can argue whether a Trump or Biden administration will be better for markets. What is a sure thing, though, is that there is going to be some sort of central bank action, soon.

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24th September 2020

🗞️ Champing at the bit

MARKET CLOSE:
iTraxx Main

61.6bp, +3.8bp

iTraxx X-Over

356.8bp, +25.8bp

🇩🇪 10 Yr Bund

-0.51%, -1bp

iBoxx Corp IG

B+128.8bp, +2.5bp

iBoxx Corp HY

B+482bp, +13bp

🇺🇸 10 Yr US T-Bond

0.66%, -1bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Small mercies…

The anticipated rout didn’t come. After the weaker close in the US the previous day, European markets opened on the back foot but really did manage to limit the downside. There was some distraction from the UK Chancellor’s statement in the Commons, while markets attempted to latch on to the better than expected news coming from business surveys in France and Germany.

In credit, the investor focus for the session was medical device maker Medtronic. The US borrower didn’t disappoint and even added a sixth tranche to its mega jumbo deal. Despite this Herculean effort by Medtronic, the size of the deal still failed to get us over the line. That record supply – for any year in IG non-financial corporate issuance – will have to wait. Until next week.

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23rd September 2020

🗞️ There’s life in the old dog yet

MARKET CLOSE:
iTraxx Main

57.7bp, unchanged

iTraxx X-Over

330.6bp, +2bp

🇩🇪 10 Yr Bund

-0.50%, unchanged

iBoxx Corp IG

B+126.2bp, -0.5bp

iBoxx Corp HY

B+469bp, -2bp

🇺🇸 10 Yr US T-Bond

0.69%, +2bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

But rowing back on overly bullish expectations…

Investors spent Tuesday licking their wounds and surveying the carnage of the day before – but the damage wasn’t too bad, as it turns out. That’s because on Wednesday, European markets rallied on expectations of further policy easing of some sort, as Eurozone PMIs pointed to a slowing in service sector activity in September. The bad news helped. How curious.

By all accounts, we shouldn’t be expecting too much improvement in activity through Q4. In anticipation of central bank action, we might have at least found a floor for prices.

Rates are stable to perhaps better bid again, and there is little doubt that yields are anchored here or going lower. In credit, the primary market effectively shut as secondary recoiled. And after so much was put on issuance records being broken this week, that record will have to wait until next week. That is even after we are likely going to get a 5-tranche jumbo deal today from medical device maker Medtronic.

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21st September 2020

🏦 Stench of Scandal in the Air

MARKET CLOSE:
iTraxx Main

57.8bp, +2.3bp

iTraxx X-Over

327.7bp, +29.1bp

🇩🇪 10 Yr Bund

-0.53%, -4bp

iBoxx Corp IG

B+124.9bp, +2.3bp

iBoxx Corp HY

B+463bp, +14bp

🇺🇸 10 Yr US T-Bond

0.66%, -3bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

HSBC’s bread buttered on the wrong side…

We’re back in one of those periods, where market falls – sometimes as much as 3-4% leave some to ponder once again that it’s all over. Of course it’s not the case, but the headwinds are a clear and present danger. Every excuse was trotted out for the sell-off. Virus second wave lockdowns and US election jitters came second and third. But it was the weekend FinCEN leak on global banks’ suspicious activity reports, adding a further ingredient to an already hugely spiced-up cooking pot, which topped the list. Something may come of it, it may not, but the hit on banking stocks will see a significant dent in investor confidence.

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20th September 2020

🗞️ Market technicals favour corporate credit

MARKET CLOSE:
iTraxx Main

55.5bp, +0.7bp

iTraxx X-Over

298.6bp, +1.6bp

🇩🇪 10 Yr Bund

-0.49%, unchanged

iBoxx Corp IG

B+122.5bp, -0.75bp

iBoxx Corp HY

B+449bp, unchanged

🇺🇸 10 Yr US T-Bond

0.70%, +1.5bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Edgy markets…

Why does it feel as if we are always on a precipice? Despite the recent pullback, the headline risks point to the tech-rally still having been overplayed and likely going to see markets correct some more/bust even, as they did during the dot.com bubble. And then there’s the pandemic, the vaccine (hopefully around the corner) and how we might manage to get through the autumn/winter months with or without an effective one. Of course, excess market liquidity is propping everything up, so valuations surely can’t be justified? The point is, that liquidity can keep everything supported for a good while yet.

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16th September 2020

🗞️ Primary IG credit record beckons

MARKET CLOSE:
iTraxx Main

53.7bp, -0.3bp

iTraxx X-Over

391.7bp, -21bp

🇩🇪 10 Yr Bund

-0.49%, unchanged

iBoxx Corp IG

B+123.4bp, -1bp

iBoxx Corp HY

B+447bp, -2.5bp

🇺🇸 10 Yr US T-Bond

0.67%, unchanged

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

ESG the way forward…

A trio of IG non-financial borrowers made sure that the midweek session wasn’t going to be too distracted ahead of the Fed. The daily deal flow is chipping away at the record which is now firmly in view as the total year to date of IG non-financial issuance passed the €300bn for only the second time in the Eurobond market’s history. That aside, credit isn’t doing too much, just bumping and grinding a little tighter, for choice, amid investors having an almost narrow focus on the primary market.

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15th September 2020

💷 HY Strategy: 17.5% Returns after 5 months

Market Overview

While the equity markets rediscover themselves following that tech-led September sell-off, the credit market hasn’t quite been affected in the same way, or in a way we might have anticipated. That is, higher volatility and a sharp drop in equities usually means wider spreads, especially in higher beta markets. We haven’t seen that.

Instead, spread markets almost across the board have been firm, resolute in the face of the pressure elsewhere (equity market valuations, corporate profitability, a constant feed of geopolitical rumblings, macro uncertainty and so on).

Flow, volumes and investor interest to transact in the secondary market is, well, secondary to the need to get some more risk on board – but through the primary market. IG has a habit of receiving all of the attention and gets all the headlines. But the HY pipeline is building and we are on course for this to be – quite amazingly – a record year for issuance in the euro denominated HY corporate bond market. Another €18bn between now and year-end will do it.

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14th September 2020

🌊 Second wave? Markets making a second push, more like

MARKET CLOSE:
iTraxx Main

54.8bp, -1.8bp

iTraxx X-Over

320.0bp, -5.7bp

🇩🇪 10 Yr Bund

-0.48%, unchanged

iBoxx Corp IG

B+124.7bp, unchanged

iBoxx Corp HY

B+450bp, unchanged

🇺🇸 10 Yr US T-Bond

0.67%, unchanged

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

M&A frenzy boosts markets…

The assault on the record for annual issuance in the IG non-financial euro-denominated corporate primary bond market is on. Heading into the second half of September after €22bn of deal volume this month, we are now less than €20bn short of the 2019 record of €318bn. The pipeline is bursting and it’s fair to say that demand is also at very high levels. The corporate sector is getting cheap cash on board for whatever reason – like bolstering balance sheet liquidity, perhaps ahead of any refinancing of maturing obligations, or because it’s just cheap. Investors are clipping whatever coupon they can.

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