iBoxx GBP Corporates Index data provided by Markit Group Ltd
i) GBP Corporate Bond Index Spreads
The sterling bond market usually trades at a premium to the euro one for several reasons. It is much smaller, it is even more illiquid, it is controlled by a few very large players and the information ratio is much poorer. Issue sizes are smaller too, and the sterling market is a longer duration one (7.5 years versus 5 years). Amid the early 2016 oil/commodity sell-off and the resulting equity weakness and volatility, we could and should have expected the sterling market to underperform (it did, slightly), but the Brexit situation doesn’t seem to have added much little fuel to that.
After a stellar year for returns in 2016 (+12%), we still managed +5% in 2017 helped in no small part by the BoE’s successful completion of its £10bn corporate bond QE, some eleven months ahead of schedule. In 2018, the market lost over 2% though, in total return terms.
But credit where it is due. The longer duration nature of the sterling market was the culprit. But… spreads on the index widened by only 60bp closing the year at B+190bp and yields moved less than 60bp higher for the index to 3.34% in 2018. That is, the market was relatively well-supported. Hard or soft Brexit, we don’t think this market’s dynamic versus the euro line will change much in 2019.
See below for GBP Corporate Bond Index Yields.
More for Subscribers:
Get it in - while the going is good... It appeared a slow day - for anyone who wasn't involved in the corporate bond market. Because primary was churning out deals through a very busy session. Corporate treasury desks were taking advantage of what appears to be quieter week on the news flow/data front with the Fed/BoE/BoJ all expected to leave policy unchanged when they deli [...]
You can’t stop the music
Nobody can stop the music We can probably brush away the impending milestone of -0.30% yield on the 10-year Bund, given that after hitting a record low intraday low of -0.27% it's just a Trump tweet or a skirmish away from it. Something thereabouts is now being dismissed almost as being a normal state of affairs. The worries pile up when we get to -0.50%, while we have a rec [...]
Time for a breather
Markets anticipating central bank action... As we approach the halfway point for the month, the markets have steadied, albeit comforted knowing that a dose of policy easing is likely coming, and are therefore willing to let the numerous difficult macro/geopolitical developing situations pass. For the moment. Equities generally tread water and government bonds are stable to b [...]
Game of Bonds
Busy primary keeps credit in focus... Once again there was a strong financial flavour to the primary credit market with an added spice from SSA and covered bond issuance. As for the rest, hopes that the previous session was the start of something brighter was done away with, as all the old fears surfaced and were used as an excuse to explain the ills of the market. Credit [...]