Category Archives for "Fixed Income Market"

14th May 2020

HY Strategy: CMD Portfolio Performance Mid-May 2020

Market Overview

The corporate bond market has made a good comeback of late, mostly evident in the investment grade primary sector. The issuance pace is running at record levels and while April’s monthly deal flow was in itself a record (€57bn), May’s current total suggests it could even surpass that.

Importantly, the reopening of the investment grade market has provided somewhat of a boost to high yield primary. After having drawn a complete blank in the Feb 20 – 15 April period, we’ve since had around €5bn of issuance. Verisure reopened the market, but the likes of Netflix, Stada, Nokia and Synlab have followed.

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13th May 2020

🇩🇪 Germany Inc. steps up the pace

MARKET CLOSE:
iTraxx Main

87.7bp, +3.8bp

iTraxx X-Over

518.9bp, +16.1bp

🇩🇪 10 Yr Bund

-0.53%, unchanged

iBoxx Corp IG

B+201.3bp, +2.5bp

iBoxx Corp HY

B+xxxbp, -+xbp

🇺🇸 10 Yr US T-Bond

0.64%, -5bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Indigestion and too rich, but still gluttonous…

Primary credit markets continue to burst at the seams. It’s not often, in crisis conditions, that we get a HY borrower rated in the mid-single-B area manage to print an upsized deal (from €400m) of €850m! In the IG non-financial market, corporate treasury department suspicions lurk as to the macro outlook, because the deal flow continues at a record run rate.

The IG non-financial market has already seen €190bn issued this year, €37bn of it this month so far. The record month was April, when €57bn got away. The record year was 2019, with €318bn printed. It has to be fear of the post-June/maybe post-summer period. Get the cash on board, worry about holding it at negative rates another time. There’s nothing particularly smart in the process; It’s just fear and following of the herd.

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11th May 2020

No let up in primary splurge

MARKET CLOSE:
iTraxx Main

84.4bp, -1.6bp

iTraxx X-Over

507bp, -8bp

🇩🇪 10 Yr Bund

-0.52%, -1bp

iBoxx Corp IG

B+198bp, +1.5bp

iBoxx Corp HY

B+657bp, -5bp

🇺🇸 10 Yr US T-Bond

0.70%, +2bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Low hanging fruit being picked off…

It’s like the charge of the light brigade. Another day, another plethora of borrowers looking for money. And markets trying to trade through the May/June macro weakness. We even have the high yield borrower becoming less of an oddity on the screens.

We have failed to witness a spectacular, confidence-sapping blow-up. It helps that the wall of funding has been pushed out beyond 2021. The post-financial crisis disintermediation in the corporate funding dynamic has had the desired effect.

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10th May 2020

🗞️ Looking beyond the first half

MARKET CLOSE:
iTraxx Main

86bp, unchanged

iTraxx X-Over

515bp, unchanged

🇩🇪 10 Yr Bund

-0.53%, -1bp

iBoxx Corp IG

B+196.7bp, -0.5bp

iBoxx Corp HY

B+662bp, unchanged

🇺🇸 10 Yr US T-Bond

0.68%, +5bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Data and markets diverge…

There was no shock but certainly a bit of awe. And plenty of headlines about the post-war high 14.7% US unemployment rate and the record loss of over 20 million non-farm jobs in April. Markets, though, are looking beyond it – because that was all well-telegraphed. The numbers in Europe through last week, for April, were just as unedifying. May’s data will be poor too but with lockdowns easing, we have some recovery in activity and there is a path to some sort of recovery being established.

The dynamic of that recovery, though, remains uncertain. Nevertheless, equities are already trading the second half of 2020. In credit, things move slower. That’s the nature of the fixed income markets. Highly indebted corporates are busy trying to remain solvent. Their ability to service their obligation is paramount. Otherwise, default beckons.

The primary markets though are open for IG corporates and they are printing at a record pace, in order to defend and bolster balance sheet integrity.

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6th May 2020

⚡ The Power of the Dark Side

It can dominate your destiny… The screens were awash with deals. Surely we’re not looking at breaking the monthly record for IG non-financial deals, which stands at €57bn, again? The deal flow smacks of desperation. But it could be, that CEOs and the like have looked at the outlook (order books, forward orders) – added […]
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5th May 2020

✈️ Flying blind

Markets looking past the gloom… Monday was catch-up day following the May Day holiday across much of Europe. Tuesday was more like it. We are back to looking past the poor earnings and economic data expectations for Q1/Q2 and trying to position for some kind of recovery through June onwards. As those lockdowns ease. Recriminations. […]
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3rd May 2020

🗞️ Looking Beyond the Sombrero

MARKET CLOSE:
iTraxx Main

80.7bp

iTraxx X-Over

491.4bp

🇩🇪 10 Yr Bund

-0.59%

iBoxx Corp IG

B+193bp

iBoxx Corp HY

B+646bp

🇺🇸 10 Yr US T-Bond

0.62%

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Glass half full…

March especially – and Q1 as a result, was awful. April’s final trading session ended on a sour note, leaving the month witnessing only a decent recovery for risk markets with the FTSE adding 4.1%, the Dax 9.3% but the S&P a not too shabby 12.7%. Concerted, aggressive and unprecedented stimulus packages did the trick. Investors were also mostly looking beyond the Q1/Q2 slump in macro – and trying to bag a bargain.

It might not be a V-shaped recovery, but we’re going to get some kind of a return to growth. The odds probably favour a ‘jagged swoosh’. Credit plays into it as well in primary, where demand for deals has been nothing short of insatiable. Unfortunately, the recovery in spread markets after the initial snap back – which was significant – is now becoming more laboured across the board.

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29th April 2020

⬆️ Corporate Bond Issuance Record Smashed

MARKET CLOSE:
iTraxx Main

78.2bp, -3.4bp

iTraxx X-Over

480.3bp, -14bp

🇩🇪 10 Yr Bund

-0.49%, -3bp

iBoxx Corp IG

B+193bp, unchanged

iBoxx Corp HY

B+649bp, unchanged

🇺🇸 10 Yr US T-Bond

0.60%, -1bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Issuance deluge feeds investor confidence…

In credit, we close April with it being a record month for IG non-financial issuance, seeing the record achieved during a flourishing penultimate session. The story, though, is that we smashed through the €50bn/month issuance barrier for the first time ever, as near to €55.7bn was printed. It’s an amazing feat given we are sitting in the middle of the most awful global macroeconomic environment since the Great Depression, but also in the middle of the poorest earnings season since the 2008 financial crisis.

It’s arguably because of that, that we find ourselves in record issuance territory. On the one hand, it’s desperation (and perhaps panic) as corporate treasury departments feel the need to get additional liquidity on board. And after a devastating performance in March, with a reset in spreads materially wider, it left investors looking at the credit market – with spreads/yields not seen for many years in IG – and compelled to hoover up the flow of deals.

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27th April 2020

🌸 Risk markets to keep flowering in May

MARKET CLOSE:
iTraxx Main

81.1bp, -3.6bp

iTraxx X-Over

494.5bp, -7.2bp

🇩🇪 10 Yr Bund

-0.45%, +2bp

iBoxx Corp IG

B+195bp, -7bp

iBoxx Corp HY

B+654bp, -8.5bp

🇺🇸 10 Yr US T-Bond

0.65%, +5bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Liquidity, lots of it… Magic

It’s been very bad. But the markets are telling us that we will avoid financial (system) Armageddon. Too many have looked into the opening black hole and jumped into it. But the brakes were engaged and the various stimulus packages (Japan being the latest) have seen a remarkable April recovery. Into a dire earnings season and amid the poorest macroeconomic environment seen in several generations, markets are fighting back.

The outlook appears to be brightening. We’re nowhere close to riding high to those record levels seeing February. But the equity markets have put on somewhere between 6% to 10% in April so far. Eurozone rates have been flat, with yield impacts neutral from the huge issuance to come offset by the ECB grabfest.

Despite protestations to the contrary, in credit, euro IG has added 2.8% in total returns (iBoxx index), the AT1 market 7.2% and high yield +5.2% this month so far. Supply in the non-financial IG market is running at a record pace, 90%+ of deals are tighter than re-offer.

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26th April 2020

🗞️ Risk markets yearning to rally

MARKET CLOSE:
iTraxx Main

84.7bp

iTraxx X-Over

501.7bp

🇩🇪 10 Yr Bund

-0.47%, -4bp

iBoxx Corp IG

B+202bp, -2.5bp

iBoxx Corp HY

B+662bp, +2bp

🇺🇸 10 Yr US T-Bond

0.60%, -1bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

L, U, V, W or even a ‘swoosh’ – anything will do….

It might be a busy week on the data front, ending with the FOMC on Thursday – ahead of Friday’s May Day Holiday, but we will only get something different in markets if the Covid-19 headlines permit. News of a vaccine trial breakthrough would be most welcome in that sense. Otherwise, we think the markets want to rally – cognisant that we will come out the other side of this crisis, but left in a range while they wait.

And it might be a rocket-fuelled, turbo-like recovery dynamic reflecting the various substantial stimulus packages in place. We’d think it won’t be that aggressive a rally, as economies open up in a phased fashion. But if we are now at rock-bottom, there’s every chance markets will try to front-run a return to some kind of ‘good old days’ period.

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