11th November 2015

It’s the data, stupid

MARKET CLOSE:
FTSE 100
6,275, -20
DAX
10,833, +17
S&P 500
2,082, +3
iTraxx Main
72.5bp, +1bp
iTraxx X-Over Index
303bp, +4bp
10 Yr Bund
0.62%
iBoxx Corp IG
B+151bp, +1bp 
iBoxx Corp HY Index
B+473bp, +5bp
10 Yr US T-Bond
2.33%

The Fed will look after number one… It might all be about the data, but they are itching to pull the trigger – and they will in December. Concerns are mainly from the numbers emerging from China, but the US story isn’t really set in stone either as far as sustainable recovery is concerned, and the eurozone continues to meet all our dire expectations. For instance, China came to the fore again in Tuesday’s session, with consumer price inflation rising more slowly than expected in October as deflationary forces took hold. That kept stocks lower and the broader market in risk-off mode. Attention was also on the US and the increasing likelihood of a rate rise, which boosted the dollar while the euro weakened on what has now become the most favoured (and watered down) route for further ECB easing – a deposit rate cut ($1.06/euro). Even though a Fed rate hike might do much of Draghi’s heavy lifting (in weakening the euro), the market will be disappointed if the ECB fails to deliver something. The much-anticipated asset purchase programme changes might not come until some time in late Q1, as the laboriously frustrating piecemeal response the ECB has so far employed in this 7-year long crisis likely continues. As for credit, all the aforementioned situations were not enough to dent in any way the positive feeling in the corporate bond market, which is quite strong at the moment. We had a plethora of new deals, single-name event risk was absent, poor secondary market liquidity worked in favour of the bullish tones and all contrived to help spreads manage a little movement.

Eur9bn is up… With today’s four IG non-financial deals, the total month-to-date for issuance has reached the Eur9bn mark. We are looking for November to be a Eur20bn month, and the current run rate suggests we’ll get there. Today we had WPP, Amadeus, BMW and APRR. WPP was well received for a Eur600m 4-year deal at midswaps+65bp, which garnered a Eur3bn book. Amadeus likewise managed a huge book of almost Eur5bn for its 6-year transaction priced at midswaps+135bp, while Autoroutes Paris was back for floating paper in a 4-year maturity at Euribor+70bp (3x covered book). BMW was also back with a Eur1.25bn 5-year at midswaps+63bp. Covered bond and SSA deals made up the rest in what was actually a fairly active session in primary.

Secondary a touch wider, but noise… In the big scheme of things little really happened while it seemed that corporate credit managed to move a touch weaker for choice. It shows that our market is fairly resilient to the macro headline newsflow finally; and that any moderate weakness in stocks is not seeing much by way of selling pressure in corporate bonds. We are going tighter from here into year end. That said, the Markit iBoxx IG corporate bond index closed at B+151bp (+1bp) and the HY index was up at B+473bp (+5bp). This really does look like more defensive marks by the Street into any weakness in equities, and there is absolutely nothing by way of pressure to exit positions. This will be the same story through 2016, driven-on by that huge uncertainty around macro. That’s a topic for another day. iTraxx Main closed up at 72bp and X-Over at 303bp. The US closed a touch better, while the 10-year UST/Bund spread was at a record 171bp. We suggested 200bp in our note a couple of days ago….

Have a super 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.