iBoxx EUR Non-Financials Subordinated Index data provided by Markit Group Ltd
i) Non-Financial Corporate Hybrid Index Spreads
Corporate bond market weakness has severely impacted this high beta sector. It hasn’t helped that some commodity sector companies are issuers as well as the maligned VW. The bid for this product was extremely strong well into 2015, but we since been met with some material levels of weakness. It hasn’t helped that rating agencies have not been shy in changing their methodology for this class of asset – all too frequently. The back up in yields and therefore funding costs has made it less attractive for corporates to issue the product as a form of cheap equity in order to shore up their balance sheets.
We’ve had a few non-financial corporate issues during the first half of 2017. Still, the upbeat tone of the markets through April’s French elections saw a massive drop in yields and spreads rallied hard as investors piled in to add higher yielding corporate debt product.
The sector had lost a bit of steam of late but seemed to recover strongly in September as investors sought higher yielding debt. The index widened 5bp in August, but recovered to tighten 24bp in September and is now 103bp tighter in the opening 9-months of 2017.