24th March 2016

Primary issuance record there to be broken

FTSE 100
6,199, +6
10,023, +33
S&P 500
2,036, -13
iTraxx Main
74bp, +1bp
iTraxx X-Over Index
309bp, +8bp
10 Yr Bund
0.20%, -1bp
iBoxx Corp IG
B+154bp, -1bp 
iBoxx Corp HY Index
B+535bp, -2bp
10 Yr US T-Bond
1.88%, -6bp

What’s gone wrong?… Nothing, actually. The excitement around the potential for ECB action in the corporate bond market has dissipated very quickly. Some might be concerned at that, having hoped that the rally would have seen spreads tighten aggressively for longer and give us some great (not just good) performance for this quarter, which comes to a close in just over a week’s time. It hasn’t quite worked out that way and has instead been quite measured following those initial 2-3 sessions where we managed to save the YTD performance for almost all asset classes, and not just corporate credit. Why has this been the case? We think that there might be a bit of suspicion around how much the ECB could actually lift (we think no more than €2bn in reality). We also think that investors might prefer to see the whites of the ECB’s eyes and a firm proposal on the table of what they intend to do, how they will structure it and who will do the actual buying and credit work for them. Then we have the primary market. After €30bn or so of issuance in the week immediately following the announcement, we’ve had barely a drop in the ocean since. And before we get carried away about that huge level of issuance, lest we remember that €13.25bn of it was acquisition-related funding and not the usual “general corporate purposes” funding that comes with opportunistic forays. But no need to scratch our heads and wonder what’s happened – corporates don’t need the cash, while the huge liquidity on balance sheets raised over the past few years has probably become bit of a nuisance for them (where to invest and what returns?). Treasurers will also be well aware that the market will remain favourable for a good while yet – but also, with the aforementioned comment in mind – why rush to get funding in? For AB InBev, the ECB’s intentions were a godsend – great timing so to say – but for the rest, just some comfort that funding isn’t a problem for the medium term, at least.

Non-financial IG corp issuance – from the tenth…

… to the second best month ever, in a week

Subdued Tuesday, but an improved mood Wednesday… Almost €2bn was printed in the IG non-financials corporate bond market and Fiat Chrysler added €1.25bn for the HY one. That takes the monthly total for IG issuance to a stunning €43bn and for the HY market, to €5.5bn. The best month – ever – for issuance in the IG corporate bond market was in January 2009 when €49bn was printed. Including today’s session, there are four sessions left in which to get €6bn away and top that seven year old record high. It could happen, but we would think the attempt will be scuppered because of the Easter break. So if indeed it doesn’t happen, it is already the second best month for primary in the history of the European non-financial corporate bond market (see charts).

And hurrah, at last… The DAX closed above 10,000 for the first time since 6 January, but is still down around 7% YTD. That was the main equity story of the day with other bourses pretty much closing out the way they did on Tuesday, small up or small down. The Bund was was better bid, while peripheral bonds gave a touch back with BTP yields up at 1.29% (+4bp), for example. Much higher than expected US inventories put pressure on oil prices and the price per barrel was down 2-3% with both WTI/Brent wrapped around $40. All the moves were relatively small, highlighting the low participation rate in the market in the session as we wind down for the Easter break. In corporate bond markets, we edged better for choice. The better bid was there throughout the session, but there wasn’t much going on by way of activity and it all left the Markit iBoxx index a basis point better at B+154bp and flat again, YTD. It was a similar story in the high yield market, with spreads a touch better for choice.

Have a super Easter, back next week.

Suki Mann

A 25-year veteran of the European corporate bond markets and in his role as Credit Strategist, Dr Mann has been ranked number one in the Euromoney Investor Survey eight times in ten years. Previously with Societe Generale and UBS, he now shares views of events in the corporate bond market exclusively here on Credit Market Daily.