25th September 2018

Credit primary not waiting for the Fed

MARKET CLOSE:
iTraxx Main

69.5bp, -0.2bp

iTraxx X-Over

271.2bp, +1.1bp

🇩🇪 10 Yr Bund

0.54%, +3bp

iBoxx Corp IG

B+129.3bp, -0.1bp

iBoxx Corp HY

B+374.3bp, -2bp

🇺🇸 10 Yr US T-Bond

3.10%, +2bp

🇬🇧 FTSE 100 6185.62, -108.90 🇩🇪 DAX 12901.34, ERROR 🇺🇸 S&P 500 3372.85, ERROR

FOMC and 25bp up next…

After an indifferent opening in Europe, we managed to hold a little higher amid little material news flow that ought to have suggested we should hit the ball out of the park. The previously mentioned event risk situations continue to lurk (China/US, EM, Turkey, Italy, Brexit), but with the headlines proffering nothing new, the markets managed a slightly better feel about them. Risk on or off though elsewhere, the new issue market was always going to be a bright spot though – for the credit market.

We were not to be disappointed with deals galore across the SSA, covered and corporate bond markets to help absorb the bulging investor cash balances. September is turning into a very good month for the new issue corporate bond market.

The FOMC convenes two days of meetings and the result of it is due Wednesday evening. A 25bp rise in US interest rates is in the market and the communique which follows will be scoured for details as to the next one (due before year-end) – but also for clues as to what 2019 might hold.

Hybrid offering expected from Vodafone

We might, therefore, expect a quieter session on Wednesday – and we will get that in secondary credit as well as across equity and rate markets. However, the primary market will be fully functioning – because it can and it needs to.  Vodafone will likely be the headline-hugging borrower in the day as the UK-based mobile phone operator is expected to launch a sizeable hybrid offering.

In the meantime, IG non-financial issuance has passed the €30bn mark for the month to date (up at almost €31bn already) and at the bottom end of the large range we thought it needed to reach as our forecast for the month. That range was €30bn – €40bn and with four business days to go before we close out September, the upper end of the range seems likely. There has been a flurry of deals taking in 47 individual issues.

September’s near €31bn of deals is already easily the best month for IG non-financial issuance this year, surpassing the €26bn issued in March. Anything over €35.5bn for the month – which is likely – is going make this the best September for deals since 2014. 


Primary still churning the deals

In the IG non-financial market, Bertelsmann finally managed to get a deal away having pulled a smaller-sized transaction earlier this year (was probably too greedy), this time taking €750m in a 7-year offering priced at midswaps+65bp. Books were up at €3.7bn – so, very good – and helped the final pricing to tighten by 20bp versus the opening talk. Once again, 20-25bp of tightening in final pricing versus the opening talk was generally a feature for the session.

However, European satellite group Eutelsat took an increased €800m also in a 7-year at midswaps+140bp but a book of €1.25bn suggested a more unfancied deal and final pricing tightening by 10bp versus IPT also reflected that.

The big deal in the corporate market for the day though came from EDF. The French group issued €1.25bn in a PNC6 hybrid format priced to yield 4% with books at €3.7bn and final pricing tightened by 25bp versus the initial talk. The borrower also issued plain vanilla bullet €1bn in a 12-year at midswaps+100bp while a 2.2x subscribed book didn’t deter the syndicates from crunching the final pricing tighter by 20bp!

In financials, Santander Consumer Finance was back, this time for €750m in a 5-year at midswaps+83bp (-12bp versus IPT), while Finnish insurance group Sampo Oyj lifted €500m in a 12-year at midswaps+110bp (-15bp versus IPT).

The other deal of note came from Hungary, which issued €1bn in a 7-year at midswaps+75bp, off a book approaching €4bn and priced 25bp inside the opening talk. Quelle.


Score-draw

Equities edged higher across the board, with the FTSE outperforming as it rose by 0.65% as the session petered out with few altercations. Even as Trump addressed the UN with some choice words about the successes of his administration, praising North Korea and admonishing the Iranian regime, equities were numb to his words.

In rates, bonds were better offered and yields once again edged a little higher. We saw the 10-year Gilt yield move to 1.63% (+1.5bp) while the same maturity Bund yields rose 3bp to 0.54% and the Treasury rose to 3.10% (+2bp). This sell-off in rates is coming at just the wrong the of the month with total returns being chipped away for fixed income, coming under pressure as the monthly/quarterly performance is being measured.

Anyway, in credit, the synthetic market was essentially unchanged and that left Series 30 Main at 69.5bp (-0.2bp) and X-Over at 271.2bp (+1.1bp) in a lacklustre session.

As for secondary cash, there was little happening and the cash market closed unchanged with the Markit iBoxx index at B+129.3bp (-0.1bp). Returns for the month are at -0.4% as credit feels the sell-off in rates. While in the sterling market, we are off by 1.3% in total return terms (spreads are unchanged in the sterling index for the month) as Gilt prices fall.

The high yield index at B+374.3bp was 2bp tighter in the index (we could do with a deal, though) – and total returns are positive for the month!

Have a good day.


For the latest on corporate bonds from financial news sources, click here.

Suki Mann

A 30+ 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 CreditMarketDaily.com.