7th January 2020

Dusted Down and Deals Flowing

MARKET CLOSE:
iTraxx Main

44.3bp, -0.8bp

iTraxx X-Over

212.2bp, -0.7bp

🇩🇪 10 Yr Bund

-0.28%, unchanged

iBoxx Corp IG

B+105.6bp, +0.5bp

iBoxx Corp HY

B+351bp, unchanged

🇺🇸 10 Yr US T-Bond

1.81%, unchanged

🇬🇧 FTSE 100

7436.64, (-0.58%)
🇩🇪 DAX

13664.00, (-0.91%)
🇺🇸 S&P 500

3373.23, (-0.70%)

Champing at the bit…

We’re up and running. But not before markets had been rattled by the killing of senior Iranian commander Qasem Soleimani. While tensions will remain elevated amid fears of any retaliation which might emerge against US interests, it seems to have had a short-lived impact on markets.

We would think that the market is taking the view that the reprisals will be more limited than might initially have been anticipated, albeit with much sabre-rattling likely for the foreseeable future.

Anyway, the markets have settled and we start again. That is, equities are looking to go higher, safe-haven rates are not so well-bid, oil has dropped off the spiked highs seen on Friday/Monday and corporate credit primary has re-opened. So, not a disaster. Of course, we can expect another bout of volatility as surely a response will eventually come from the Iranian regime. Until then, it’s going to feel like we are possibly past the worst of it as investors trade the early part of the new year with a positive bias.

Eventually – if not already, there will be a keener eye on the data. We already have seen service sector activity, for December, in both the UK (stagnation) and across the Eurozone (small pick up) come in ahead of expectations.

In credit primary, there was a glut of deals. Investors are receptive and any willing corporate entities looking to get deals on the screens early will be coveted. For the session, mostly though it was covered bonds, sovereign deals, insurance and senior financials. In IG non-financials, for the third year in a row, the market was re-opened with a deal from RCI Banque as Fresenius and General Mills this time also joined the fray.


It’s raining deals

A glut of senior financial corporate bond issuance (euro and sterling), a couple of sovereign deals, several covered bonds and three IG non-financial corporate bond issues was a fine way to open the primary market proper in 2020.

It was the busiest session for a few years and might just be a sign of things to come, especially if borrowers perceive any delay in a response from Iran against US or other targets is only temporary. Investors will be of the same mindset and only too ready to fund. The session’s deal flow met with excellent support as we believe most deals will throughout the first quarter.

Deal: Credit Agricole

Senior deals came from Credit Agricole which lifted €1.25bn of a 12-year senior non-preferred at midswaps+70bp (-20bp versus IPT), with BBVA also borrowing €1.25bn but in a 7-year senior non-preferred at midswaps+70bp (also -20bp versus IPT).

Mizuho followed with €750m at midswaps+67bp in a 10.25-year, while Credit Suisse printed €1.25bn in an 8NC7 deal at midswaps+77bp. There was a tap amid all the deals, for €500m from Commerzbank of its 0.5% 2026 issue at midswaps+65bp.

Rounding off a busy session for senior euro bank deals, BPCE issued €1.5bn in a 6-year at midswaps+45bp and €750m in a 10-year at midswaps+55bp with both 15bp inside the initial talk with combined books up at just over €3.5bn.

For the day, a hefty €6bn was issued and we can look forward to a sprightly level of deal flow this month. January (and indeed, Q1) is usually the brightest for the senior market – last year saw €17.5bn issued in the month.

The sterling deals came from Danske Bank which issued £750m of an 8NC7 senior non-preferred at G+165bp (-15bp versus IPT) and BNPP offered a short 8-year of £850m also in senior non-preferred format at G+130bp (-20bp versus IPT).

Elsewhere in financials, Allianz issued €1.25bn in a dual-tranche deal with €500m in a 5-year (midswaps+20bp) and €750m in an 11-year at midswaps+40bp off combined books of €5.2bn.

In the sovereign sector, Slovenia issued €1.5bn in a 10-year maturity at midswaps+19bp which was well inside the initial talk of midswaps+30bp and made possible with demand up at €11.75bn for the offering. Indonesia followed with a long 7-year for €1bn which priced at midswaps+103bp (-27bp inside IPT).

As for IG non-financials, Fresenius issued €750m in an 8-year maturity at midswaps+83bp where the €2.1bn book saw final pricing 22bp inside the opening talk. The first reverse yankee deal in the market for 2020 came from General Mills, which issued €600m in a 6-year at midswaps+60bp and was 25bp inside the opening chat.

Then there was RCI Banque – a regular first in the market as it has re-opened in previous years. They issued €750m in a 7-year priced at midswaps+130bp, off a book at €2bn (and -25bp inside IPT).


A bit of this and a bit of that

The recovery in equities felt more and more tentative by the time the day played out.  Nevertheless, we managed to recover previous losses through a decent European trading session. The Dax regained 0.7%, the FTSE was flat and US markets were mixed as at the European close.

The day’s economic data saw Eurozone inflation (CPI) for December come in at 1.3% (versus 1% in November) which might have heartened policymakers, but much of it might have been a Christmas effect and therefore not likely sustainable through Q1.

In the US, December’s weak factory report didn’t hold sway on service sector activity, with the December ISM rising to a slightly better than expected 55 from 53.9 in November.

The initial weakness in rate markets saw some subsequent recovery and they closed near flattish as well. The 10-year Gilt yield eventually closed at 0.80% (+2bp), the US Treasury was yielding 1.81% and the Bund -0.28% – both unchanged.

In credit, as seen in the synthetic indices, protection was barely moved but if anything, better offered for choice. iTraxx Main edged 0.8bp lower to 44.3bp and X-Over was 0.7bp lower at 212.2bp.

All that’s left is the cash market. Clearly, the focus was on that primary market but the better tone in equities and other risk assets saw the market little changed. In IG, we edged wider a touch, the index at B+105.6bp (+0.5bp) while the AT1 market was a touch better and the index at B+393bp (-4bp). In HY, the market closed unchanged.

Have a good day.

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.