18th April 2018

IG borrowers missing in action

MARKET CLOSE:
iTraxx Main

53.4bp, +0.8bp

iTraxx X-Over

271.1bp, +3.3bp

10 Yr Bund

0.53%, +2bp

iBoxx Corp IG

B+103.2bp, +0.2bp

iBoxx Corp HY

B+310bp, -1bp

10 Yr US T-Bond

2.86%, +4.5bp

FTSE 100

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DAX

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S&P 500

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Corporate vanishing act…

A poke in the eye for a moribund euro-denominated IG non-financial corporate bond market, as Syngenta decided not to proceed with the acquisition finance funding deal in the currency. They got filled in dollars for the $4.75bn they were looking to raise. The issuance run rate so far this year is the lowest for five years resulting in a sense of frustration in some quarters, not helped that the tipping of the supply/demand imbalance towards the latter isn’t exactly leaving spreads ratcheting tighter. Even the expected dual-tranche offering from EP Infrastructure didn’t materialise although we’re hopeful it will be Thursday’s business.

The IG non-financial deal total for the year to date is at a low €67bn. The average monthly supply is at €17bn versus €22bn for each of the previous four years. There was hope that April would bring plenty to make up the shortfall from the first quarter, but we have barely had €12bn issued. The high yield pipeline is significant, but the visibility for IG is always less given the usual lack of a need to roadshow and prepare the market ahead of a deal. With just eight sessions to go in order to get business done before the end of the month, €20bn as a final total might be a reasonable expectation now for April, while anything north of that would be a welcome surprise.

As for Wednesday’s session, we got just high yield issuance. French telecom provider Iliad which is unrated, and in our view an implied high yield/X-Over rated borrower, issued a dual-tranche transaction for €1.15bn. Piaggio finally priced its issue and was followed by Samsonite Finco. There’s plenty more to go and at least, in this market, we’re going to get a decent amount of issuance this month to add to the higher levels of the supply seen in the first quarter. Last year’s Jan-April issuance was €22.4bn and the supply this year to date is ahead of that at €24.5bn.

It should not be lost on anyone that last year saw a record level of high yield issuance at €75bn, and most forecasts are for a drop this year. That’s unlikely and, as things stand, we might be looking at this year setting a fresh record.

High Yield Issuance


Feel good factor returning elsewhere

The session’s main news flow on macro was the surprise drop in UK consumer price inflation in March to 2.5% from 2.7% in February, versus expectations that it would remain unchanged. With odds previously shortening of a rate hike in May, this inflation report might just see those odds lengthen. As we might expect, sterling dropped and Gilts rallied, with the 10-year yield declining by 3bp to 1.41%. That rate hike might still come, but we would think it will be the only one this year if it does materialise.

Elsewhere we had a mixed picture in rate markets with US yields up, the 10-year Treasury to 2.86% (+5bp) and the Bund yield at 0.53% (+2bp) with the periphery probably better bid for choice.

In equities, the Dax was a touch lower or most of the session, before recovering to close flat. Other European bourses were in the black and the weaker sterling probably promoting a better bid for UK equities, leaving the FTSE up 1.3%. US equities were flattish to in the black as they continued their recovery after several weeks of being underwater. Morgan Stanley’s Q1 earnings topped estimates and gave a push to sentiment which was unsullied even as IBM missed in its disclosure on Tuesday evening.

Metals continue to reach recent or record highs (aluminium, for example) on Russian sanctions impacting global supply in some cases, while Brent saw $73 per barrel (highest since early 2014).


High yield dominates corporate primary

Primary, as always, is the focus for corporate bond investors. Iliad printed €1.15bn with a €500m long 3-year finally priced at midswaps+60bp (-15bp versus IPT) and a 7-year tranche for €650m, priced at B+130bp which was just 5bp inside the initial guidance. The book was a combined €1.7bn. Samsonite Finco priced €350m in an 8NC3 structure at 3.50% (-25bp versus IPT), Group Antolin-Irausa took €250m at 3.375% in an 8NC3 deal and Piaggio lifted €250m in a 7NC3 deal at 3.625% (-37.5bp versus IPT). There’s more to come.

BofA issued €2bn

In financials, BofA issued €2bn in a 6NC5 floater at Euribor+70 and €1.25bn in a 10NC9 offering at midswaps+80bp. The deal took the monthly supply total to €11.6bn which is just €2bn short of the April total in 2017, but with the run rate for the year the same as last year (2018 YTD: €62.4bn). Austrian banking group Bawag plumped for an AT1 offering for €300m to yield 5%.

Synthetic credit was slightly better bid, reversing the tightening trend seen over the past few sessions and going against the trend of higher equities. iTraxx Main was 0.8bp higher at 53.4bp and X-Over was up at 271.1bp (+3.3bp).

As for cash, there was little going in secondary, and we closed unchanged, the iBoxx IG cash index left at B+103.2bp (+0.2bp). In high yield secondary, the Markit index was left at B+310bp (-1bp). In all, small moves and a very lacklustre midweek session.

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.