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:
(Free Content) Trade Ideas – What You’ve Been Missing!
GJ Prasad's Trade Ideas column has been providing actionable, tactical trading ideas in bank subordinated debt and single name CDS in the form of a weekly note. Here are a few of the trade ideas so far which you can now read free of charge to get a feel of what this new subscription service offers: SANTAN: https://www.creditmarketdaily.com/want-a-nice-trade-to-play-s [...]
It was just too good a thing
Squeaky bum time, again... Approaching the half way point for the month and we find that credit spreads have performed better than even the most bullish of expectations. OK, there are still almost 11 months to go and the macro risks are building, but we have some good performance in the bag to help alleviate some of the inevitable weakness and/or pain to come. The situation [...]
Grim reaper lurks
Limp credit markets... It's been the limpest of weeks as far as activity has been concerned, although for credit market participants they're at least grateful for the squeeze in spreads which has given some excellent early year performance. We're not buying into the excuse that the earnings season has curtailed primary activity, because only a small proportion of companies a [...]
Special place in Hell? Surely not
Credit on a roll... We are barely six weeks into 2019 and we have an almighty squeeze occurring in spreads in the corporate bond market. Investment grade spreads have tightened 20bp (iBoxx index) while the solid support for the underlying has meant that we have already managed total returns of 1.5%. The high yield market, supposedly going to suffer from the macro slowdown th [...]