23rd May 2017

Manchester – United.

MARKET CLOSE:
iTraxx Main

  • 62bp, -0.6bp
iTraxx X-Over

  • 251.4bp, -1.3bp
10 Yr Bund

  • 0.41%, +1bp
iBoxx Corp IG

  • B+118.2bp, -0.25bp
iBoxx Corp HY

  • B+320.7bp, -2bp
10 Yr US T-Bond

  • 2.24%, -1bp
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On we go…

No Greek debt relief yet as talks broke down and the terrible events around the Manchester bombing made for a reflective and sombre session on Tuesday. With Ascension Day upon us on Thursday – and holidays across Europe as a result, we effectively have just today’s session of meaningful activity left before next Tuesday (Monday is a Bank Holiday in UK).

We might have been forgiven had we been greeted with just a number of ‘easier’ deals in the form of covered bond and SSA-like issuance (we were), but we managed to get some senior bank issuance away as well as a four-tranche effort from pharmaceutical group Allergan. The economic news elsewhere was positive, Eurozone PMIs were showing that economic recovery continues to gather pace while Germany’s business climate index (Ifo) rose to record levels.

We dare say the Greeks will eventually get a deal. It might not be a great one, or the one the market thinks will be enough to alleviate much of the concerns and burden around their debt load and the restructuring of it. But we’ll get something which takes us over the line and allows us to limp on until the next round of debt repayments. It should keep front-end yields anchored. It should also keep returns for high yield markets at these elevated levels, because spreads are unlikely going to widen anytime soon – Especially if that fundamental economic picture continues to show improvement. Record low spreads for the European high yield sector are here to stay – and likely going deeper into record territory.

As for the back-end of the underlying curve, that will move depending on the macro and geopolitical event risk and to some measure on how the economy plays out. Net net, they’re likely anchored in established ranges which for the 10-year Bund is 0.20 – 0.50% and 2.20 – 2.50% for the US Treasury.


Primary still dealing

€2.7bn multi-tranche deal from Allergan

They’re not doing in twos or threes anymore. We had yet another 4-tranche offering. Low triple-B rated Allergan took 2-year, 4, 7 and 12-year funding for a combined €2.7bn and managed to reduce the final cost of funding from between 13-18bp depending on the tranche. Everyone loves a new or infrequent borrower – and these deals had a bit of spread in them.

The other IG non-financial deal in the market came from US medical technology company Becton Dickinson in a (peculiar) 2-year floater for €700m at midswaps+50bp – and some 20bp inside the initial guidance. They had issued a 7-tranche dollar deal the day before.

These deals take the total supply in IG non-financials for the month to €31.05bn which compares with €5.6bn in April. It is also the second best month for supply this year and should we get another €6bn, it will be the best month this year. We have in no small part been helped by the €8bn GE deal, the €4.5bn LVMH issue, Apple‘s €2.5bn and the €2bn from each of IBM and E.ON. That is, six borrowers (including Allergan) have been responsible for €21.7bn of this month’s total, so far.

The rest was about financials. Jyske Bank issued €500m in a 3-year floater format, Credit Mutuel Arkea came in senior non-preferred format for €500m in a 7-year maturity and we wrapped up with a sub-investment grade rated 10NC5 Tier 2 €500m deal from BPER Banca.


Last week’s wobble brushed aside

Last week’s Trump-tantrum was so… well, last week! Although they didn’t quite make much ground in Tuesday’s more hesitant session, US stocks were closing in again on record highs. Mostly, stock indices were in the black by a small amount across the board and the volatility index – the VIX – was back showing a 10%-handle. It had briefly popped to over 15%.

Government bonds played out in tight ranges, barely moved into the close. That meant the 10-year Bund was yielding 0.41% (+1bp), the equivalent maturity OAT 0.84% (-1bp), US Treasuries 2.27% (+2bp) and Gilts 1.08% (-1bp).

In the corporate bond market, focus as ever was on the primary sector which duly delivered more than we could have expected, all things considered. But we did manage to trade better in a risk on moment. That left the iTraxx indices edging back to their lows of early last week, at 62bp (-0.6bp) and 251.3bp (-1.4bp) for Main and X-Over, respectively.

The cash markets were better bid for choice, but the price action was extremely limited. That was also evidenced by the final marks, which left the Markit iBoxx index at B+118.2bp (-0.25bp) – with a similar story in the sterling corporate bond market. In high yield, the difference was a little more noticeable in the index levels, with the iBoxx index at B+320.7bp (-2bp) leaving us just 3bp to go before we test the record tights of a week ago.

Overall, the markets managed the aforementioned risks and situations with a high level calm, respect and were reflective throughout the session. The S&P index (or US stocks generally) will dictate where we go from here. There is no escaping them. That index closed just 6-points off its record high.

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.