Category Archives for "Fixed Income Market"

23rd April 2020

🗞️ So THAT’s where the smart money is!

MARKET CLOSE:
iTraxx Main

82bp, -3.2bp

iTraxx X-Over

489bp, -17bp

🇩🇪 10 Yr Bund

-0.43%, -1bp

iBoxx Corp IG

B+205bp, -5bp

iBoxx Corp HY

B+xxxbp, -+xbp

🇺🇸 10 Yr US T-Bond

0.61%, unchanged

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Finding ways to play it safe…

The smart money, or the money, in the European bond markets, has been trading the ECB bid. If the biggest buyer of euro-denominated IG corporate/Eurozone government bonds is involved, then so are investors. We’ve seen that clearly in corporate primary.

With so much uncertainty unleashed by the ongoing COVID-19 pandemic, it seems reasonable that any new positions at least have the comfort of a price-insensitive back-stop bid.

We’ve seen it in the huge demand registered for this week’s Spanish and Italian sovereign debt offerings. And we’ve seen it in anything ECB ‘eligible’ in the corporate bond market where books are unusually massively oversubscribed.

Although games are being played – they are now expected to continue – by investors and issuers alike (oversubscription, 20-60bp of tightening versus IPT, price discovery dynamics out of the window), everyone knows which side their bread is buttered.

Continue reading

21st April 2020

🛢️ Oil tanks, Risk off

MARKET CLOSE:
iTraxx Main

91.3bp, +6bp

iTraxx X-Over

554.3bp, +45bp

🇩🇪 10 Yr Bund

-0.49%, -4bp

iBoxx Corp IG

B+212.3bp, +2.5bp

iBoxx Corp HY

B+671bp, +17bp

🇺🇸 10 Yr US T-Bond

0.55%, -7bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Oil and trouble…

The high yield market had been outperforming. Who would have believed it? Admittedly it was only for a couple of weeks. We were always going to need some luck to keep it going. It’s likely now that the Verisure deal of last week will be it for a while – akin to a pop-up shop, testing the market and closing up quickly. Hit and miss.

The oil glut and subsequent price carnage have understandably hammered the mood, taken in many casualties, and along with it hopes of a V-recovery. We are probably having to contemplate a U-shaped one – at the very best.

Continue reading

19th April 2020

↕️ More high/low beta compression

MARKET CLOSE:
iTraxx Main

82.3bp, -2.3bp

iTraxx X-Over

486.9bp, -6.2bp

🇩🇪 10 Yr Bund

-0.47%, unchanged

iBoxx Corp IG

B+209bp, unchanged

iBoxx Corp HY

B+652bp, -2bp

🇺🇸 10 Yr US T-Bond

0.64%, +1bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

The lesser spotted HY deal..

Gosh! We had a high yield deal following a 7-week absence. Another 5.2m Americans lost their jobs last week, and although it was lower than the week before, it’s still over 22m losses since the pandemic was declared some four weeks ago. The data is poor on both the Q1 earnings front and in macro (Chinese GDP -6.8% in Q1). That bit was to be expected.

The markets are, however, looking to the bright side and way beyond that peak. There is a lack of permanency about the job numbers, with a macro bounce back anticipated perhaps during the summer months. As has been the case this past financial crisis (and now health crisis-ravaged decade) the doomsayers are being wrong-footed. The Gilead coronavirus drug trial, thought to be going well, has given markets another push amid hopes that we’re at the beginning of the end of this pandemic.

There is a feeling of a tentative recovery in the works. W or V-shaped recovery notwithstanding, the liquidity injections are looking like they will mask the underlying ills of the global economy a little longer yet. Risk is back on a roll, and we’re seeing further compression between high and low beta assets.

Continue reading

15th April 2020

🗞️ Credit markets getting ahead of themselves

MARKET CLOSE:
iTraxx Main

84.9bp, +7.7bp

iTraxx X-Over

490.4bp, +40bp

🇩🇪 10 Yr Bund

-0.47%, -9bp

iBoxx Corp IG

B+207bp, unchanged

iBoxx Corp HY

B+646bp, +2bp

🇺🇸 10 Yr US T-Bond

0.67%, -8bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Caution is thrown to the wind…

Advanced economies are set to shrink by over 6% this year, so says the IMF. The global economy is expected to take in a decline of 3%. The UK economy will plummet by up to 35% in Q2 alone if the lockdown persists, according to the OBR. Other forecasters have suggested a 10%+ drop in Eurozone growth for 2020.

The earnings season has kicked off on Tuesday with JPM’s net income down by 69% for Q1 as Wells Fargo ‘made’ 1c per share. On Wednesday, BofA (-40% YoY) reported as did Goldmans (-46% ) and Citigroup (-46%) and they all missed. Quelle. Amid much confusion, WTI has dropped through $20 per barrel and close to its lowest level so far this side of the millennium, on fears that the collapse in demand will persist amid a massive glut. US shale has had its day, even if US HY has staged a remarkable recovery on the back of Fed assistance.

These are big headlines. Yet, global equities had broadly been rising. Up until Wednesday’s weaker session the S&P, for example, had clawed back 655 points since hitting those lows and was just 384 points from being flat for the year, or 547 points from its record close, also seen this year. Even the Vix had dropped back at around 40%. The S&P was 70 points lower again at the time of writing.

Credit markets have bounced back, too.

Continue reading

13th April 2020

🏃‍♂️ Credit spreads tighten: Don’t chase market

MARKET CLOSE:
iTraxx Main

79.4bp

iTraxx X-Over

451.8bp

🇩🇪 10 Yr Bund

-0.34%

iBoxx Corp IG

B+219bp, -15bp

iBoxx Corp HY

B+680bp, -40bp

🇺🇸 10 Yr US T-Bond

0.75%, +2bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

That ol’ chestnut…

Don’t fight the Fed. Who hasn’t heard that one before? It’s come back to bite many a time. And they’re at it again, the market has been rallying. There might be more to come. Few will bet against it, especially if we’re close to passing peak-virus and heading down the other side. Q1/2 earnings/macro numbers are going to be awful, but markets will position for some kind of a V-shaped recovery.

The broad direction across credit spread markets is the same – it usually always is, but the pace of the journey differs depending on the particular sub-sector. All spread markets went down by the elevator (gapped wider) a couple or so weeks ago. We could have expected a grind back (tightening) with the vagaries (liquidity, supply, beta) of each sub-asset class (IG, HY, AT1 and £) determining the particular pace of it.

High yield and AT1 markets have had a super recovery run. Is it reasonable that they do tighten so much? After all, the latest forecasts suggest that, for example, the Eurozone’s GDP could decline by over 10% this year, encompassing a disastrous Q2. Surely that delivers a crushing blow to say the high yield market. Yet one would be forgiven in thinking it’s not that bad judging by the latest market moves.

Continue reading

7th April 2020

↩️ Signs of a turnaround

MARKET CLOSE:
iTraxx Main

96.5bp, -8bp

iTraxx X-Over

548bp, -47bp

🇩🇪 10 Yr Bund

-0.31%, +14bp

iBoxx Corp IG

B+240bp, -9bp

iBoxx Corp HY

B+735bp, -30bp

🇺🇸 10 Yr US T-Bond

0.77%, +10bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

HY credit trying to have its moment…

Declining coronavirus-related death rates and talk of easing lockdown restrictions across several countries have given a big boost to markets. They will try and get ahead of the curve as much as possible, and if virus peaks are being reached across Europe (not yet in the US), then we must be looking to establish a floor for risk assets.

That’s important because we’re going to see the economic machinery haul itself back into action, albeit in measured form. That won’t stop investors piling back into the markets, as they attempt to front-run them and welcome greater levels of economic activity.

The IG primary market has already been extremely busy and we’re now seeing lower-rated, peripheral borrowers jump on the bandwagon very quickly. There was a hint emerging of indigestion last week, as deal subscriptions begin to decline, but the markets have been in fine form once again. All in investment grade.

Continue reading

5th April 2020

❔The high yield market mystery

MARKET CLOSE:
iTraxx Main

114bp, +5.5bp

iTraxx X-Over

637.5bp, +25bp

10 Yr Bund

-0.44%, unchanged

iBoxx Corp IG

B+251bp, unchanged

iBoxx Corp HY

B+775bp, unchanged

10 Yr US T-Bond

0.60%, -2bp

FTSE 100

6220.14, (+0.87%)
 DAX

12021.28, (+3.75%)
S&P 500

3080.82, (+0.49%)

High yield isn’t ticking any boxes…

On the surface of it, the relatively resolute performance of the high yield market takes some explaining. The iBoxx index gapped to B+2000bp in 2008 at the height of the financial crisis. This time, we barely saw B+900bp at the peak of the panic just over a week ago. That was a commendable effort.

Over a decade ago, the high yield market in Europe was under €50bn in size (might explain the huge widening – a fledgeling and illiquid sector) whereas this time it is now circa €350bn in size (no longer an immature market but still illiquid). Performance-wise, though, HY lost almost 40% in 2008 while in Q1 this year the index lost over 15% in total return terms.

Is the worst still to come? Economic activity, as expected, has collapsed. We’re in depression territory. We can see that many corporates will have bought themselves some time with the heavy capital markets activity over the years. But revenues, profits, debt and credit metrics and the like will have come under some pressure in Q1, much more in Q2 and will likely fall through the floor in Q3.

Continue reading

2nd April 2020

💉 Corporate bond primary on steroids

MARKET CLOSE:
iTraxx Main

108.5bp, +5.5bp

iTraxx X-Over

612.5bp, +11bp

🇩🇪 10 Yr Bund

-0.44%, +3bp

iBoxx Corp IG

B+251bp, -1bp

iBoxx Corp HY

B+775bp, -8bp

🇺🇸 10 Yr US T-Bond

0.61%, -3bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Not quite broken markets everywhere…

Albeit seemingly on steroids, the only market doing what is says on the tin, in the sense that everyone is satisfied, is the IG corporate bond primary one. We have become used to equities not unusually up or down by 3-5% per session, rates better bid or offered depending on which way the wind blows and secondary credit spreads tighter or wider – no matter what.

Now borrowers are falling over themselves to get deals away. Fund managers might have been barricading the doors at one end to help stem the outflows, but they’re piling into corporate bonds on the other. Coverage ratios are a bit more hit-and-miss now though, perhaps exhibiting signs of investor fatigue.

What was (at first) all about good, solid double-A/high single-A corporates accessing the markets, has become – inside a week – something for triple-B borrowers, too. And that includes peripheral ones.

And it looks as if primary credit markets are getting carried away. We are seeing the issuer rating head lower, and now we are not too far from a high yield borrower getting a deal on the screens. This market has been shut since 20th February. We’ve drawn a complete blank in HY primary for over 6 weeks.

Continue reading

31st March 2020

🗞️ Corporate bonds: Pile ’em high, sell ’em cheap

MARKET CLOSE:
iTraxx Main

98.1bp, -1bp

iTraxx X-Over

572.1bp, -8.4bp

🇩🇪 10 Yr Bund

-0.48%, +5bp

iBoxx Corp IG

B+252bp, -3bp

iBoxx Corp HY

B+782bp, -24bp

🇺🇸 10 Yr US T-Bond

0.68%, +1bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

But it is a quarter to forget…

In the end we managed to finish in the black but there’s a feeling that we might be running out of steam. Having said that, it has been a super recovery-like period for the markets. It’s a case of too little, too late because it has been a devastating quarter for investors. We suspect that the turnaround is going to be immense, though, given the number of players looking for the ideal/opportune time to pile back in.

The rocket fuel is in place and being deployed (from the various stimulus packages) and will ultimately go a long way in assisting the recovery. Get the virus’ peak right (in the US), and one might just pick the bottom.

In the corporate bond market, the final session had us take down another flurry of deals, this time with 8-tranches from five IG non-financial borrowers. Equities added a percentage point or so. Oil edged off its recent lows. Credit spreads were stable. Q2? More of the same to start would be welcome.

Continue reading

30th March 2020

🗞️ Corporate bonds: Help needed for the little guy

MARKET CLOSE:
iTraxx Main

98.1bp, +4.2bp

iTraxx X-Over

580.5bp, +4.3bp

🇩🇪 10 Yr Bund

-0.53%, -5bp

iBoxx Corp IG

B+255.4bp, +1bp

iBoxx Corp HY

B+806bp, +12bp

🇺🇸 10 Yr US T-Bond

0.66%, -9bp

🇬🇧 FTSE 100

6220.14, (+0.87%)
🇩🇪 DAX

12021.28, (+3.75%)
🇺🇸 S&P 500

3080.82, (+0.49%)

Good riddance to Q1, but will Q2 offer hope?

The first day of calm after 3 weeks. It doesn’t feel right. The S&P didn’t hit limit up/down and EM bonds were not moving in a 5/10 point range.

The enemy has been at the gates, though. Fund managers have been propped up against the door, stopping investors from breaking it down and getting their cash out from the various investment funds. That door is always too narrow when everybody wants to exit.

The ECB might have widened the door for the investment grade markets, but the orphaned markets are left to fend for themselves. For instance, the primary market is open, but well-known, large, hitherto solid, well-rated corporates are the only ones that can print – and for that, they are paying up.

Performance-wise, we are sitting on total returns (iBoxx) in IG credit of -6.1%, AT1 -18.3%, HY -15.9% and IG sterling of -6.0% for the year to date. Hard to imagine that it’s actually been worse. Last week’s huge rally in risk assets following the launch of those stimulus programmes – and now a rally in the underlying – has saved the day!

Continue reading