16th April 2018

ECB corporate purchases reach landmark

iTraxx Main

53.4bp, -1.7bp

iTraxx X-Over

270.8bp, -5.3bp

10 Yr Bund

0.52%, +1bp

iBoxx Corp IG

B+103.6bp, -+xbp

iBoxx Corp HY

B+313.5bp, -3bp

10 Yr US T-Bond

2.83%, unchanged

FTSE 100


S&P 500


Treading water in tentative session

The limited Western response in Syria elicited a fairly pragmatic market response. In a tentative, finding-your-feet session opening part of the session, the moves were limited and we might just get away with focusing on the earnings season and macro rather than geopolitics. Into the end of the month, that is.

The relief that the US and Russia had avoided direct contact was only reflected though in the rate markets where safe-havens came under some pressure forcing yields higher. Equities were probably looking forward to the earnings season and macro, while credit markets had a steady opening session to the week.

There isn’t too much Russia can do in response in terms of economics or even geopolitics, because they will possibly come out worse for it given the precarious state of the domestic economy, its poor contribution to the global economy (energy aside) and the difficult political situation (read isolation) it finds already itself facing. The tentative market feel faded as the US opened as dollar weakness started to impact the relative moves in equity markets (Europe lower, US higher).

We had some primary, but there was a financials flavour to it. There was something for everyone nevertheless as non-financial investment grade and high yield, senior bank and hybrid issuance served up a mini smorgasbord of high/low beta, fins/non-fins deals. Other than that, it was generally difficult to find something in the day to get hold of as a reason to sell-off or rally, with economic news flow on the light side, although we did have BofA report Q1 earnings in easily excess of estimates and in line with the upbeat reports from JP Morgan and Citigroup last week. Goldman’s, IBM and J&J are the big blue chips reporting on Tuesday.

A little bit for everyone

In the primary market, HeidelbergCement was the IG non-financial corporate sector’s representative in the session with a €750m, 10-year maturity deal priced 15bp inside the opening guidance at midswaps+90bp. The German borrower attracted a €1.5bn book. The issuance for the month moved to €11.3bn with this deal. For this year so far, we move to €66.4bn, versus anywhere between €90-130bn in the opening four months of the year since 2014. So there’s plenty of room for deals as the run rate drops below the average of the last four years, we just need borrowers to print into the demand.

From the recently gushing real estate sector, we had Unibail-Rodamco issue a dual-tranche hybrid totalling €2bn. The deal was very well-received. The high triple-B rated deals offered decent yields after all. The €1.25bn, PerpNC5.5 structure was priced to yield 2.125% off a €4.25bn book which allowed the borrower to reduce the final costs by 37.5bp. For the other tranche, they took €750m in a PerpNC8 structure which was priced to yield 2.875% and 25bp inside the initial guidance with a book in excess of €2.75bn.

In senior financials, we had deals from UBS and Banco BPM. The latter issued €500m in a 5-year at midswaps+145bp while UBS took OpCo funding for €2.5bn in two tranches. The first was €1.25bn in a 3-year floater at Euribor++25bp and the other tranche of €1.25bn was a short 5-year at midswaps+35bp. Combined books were at around €3.7bn and they lopped 10bp off the initial talk. Senior issuance YTD is now up at a decent clip of €59bn, with €8bn coming this month so far.

ECB finally makes it to €150bn

The ECB announced that its corporate debt purchases since the CSPP began had finally reached the €150bn mark.

Following a lift of just €238m in a shortened Easter week, the ECB’s haul of IG non-financial corporate debt rose in the post-Easter week to €807m and last week was just €817m. The cumulative additions in the last four weeks are now at €4bn suggesting that the monthly run rate might be declining from the €5-6bn previously envisaged. Not that the lower additions by the central bank had any negative impact on spreads, as both IG and HY markets tightened last week.

Recent ECB Weekly Purchases

The total purchases to date, after 96 weeks of market participation, stand at €150,326m with the long-term weekly average purchases at €1,565m.

No rest for the wicked

As for the day’s markets, headline US retail sales for March rebounded to rise 0.6% month-on-month and ahead of the 0.4% expectations, from a decline in February of 0.1%. Trump was tweeting again, about the US currency and the perceived devaluation of the rouble and the renminbi against it. Meanwhile, the US was busy hitting telecom equipment maker ZTE (of China) with a denial of export privileges, following a series of false and misleading statements to the Department of Commerce.

With all that going on, US stocks were up to 1% higher (the S&P back in the black year to date) and European bourses up to 0.9% lower, with US index volatility declining to less than 17% (VIX). Rate markets saw pull-back from their early session highs, with the 10-year Bund and Treasury yields at 0.52% (+1bp) and 2.83% (unchanged), respectively. The 10-year Gilt closed at a yield of 1.46% (+3bp).

In credit, protection costs fell again, with the iTraxx indices generally better offered in the day. That helped Main to close 1.7bp lower at 53.4bp and X-Over to drop by 5.3bp to 270.8bp.

As for secondary cash, it followed the better tone seen in US equities and didn’t get distracted by the technical drop (strong currency) in Europe. It wasn’t a busy session. The Markit iBoxx index closed 0.9bp tighter at B+103.6bp and to the lowest level in almost a month. It was a similar picture for the high yield market, with the HY iBoxx index moving 3bp tighter to B+313.5bp.

Have a good day.

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

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.