20th November 2015

No more repeats, please

MARKET CLOSE:
FTSE 100
6,330, +51
DAX
11,085, +125
S&P 500
2,081, -2
iTraxx Main
71bp, +1bp
iTraxx X-Over Index
295bp, +0.5bp
10 Yr Bund
0.48%
iBoxx Corp IG
B+152.25bp, -0.25bp
iBoxx Corp HY Index
B+477.5bp, -2.5bp
10 Yr US T-Bond
2.24%

Welcome to the corporate world… Spreads unchanged, supply underwhelming, Bund yields a little lower but returns in IG credit edging closer to positive territory year-to-date. We may as well just finish off this Friday with the same comment as a week ago! We’re a week away from Thanksgiving and just a couple of weeks away from the next ECB meeting, and then up comes the Fed. The next stop for the UST-Bund is 185bp (177bp currently); for equities we’re thinking “rally” as the Fed move will have no impact – more likely relief; and for credit, IG returns will be back in positive territory. We hope that comes about because spreads will have started to tighten, but most likely it will be driven by the bid for the underlying (government bonds) as policy diverges between the ECB (looser) and the Federal Reserve (tighter). Measuring the state and/or performance of the corporate bond market through the broad, far-reaching Markit iBoxx index, spreads are stuck at a little north of B+150bp but returns, having been down almost 1% YTD in September, have clawed their way back to almost zero YTD.

Secondary needs a boost to generate some activity… But it is unlikely going to come any time soon. The technicals of an illiquid market are coming home to roost. And the current buy-and-hold dynamic is going to be with us for many years, as are the consequences of it. Right now, the better complex of the market makes it easier to sell than to buy. And the poor offered side part of the equation is strangely not acting as a catalyst in promoting a tightening trend. Where there might be opportunity – to buy or sell – in miners’ bonds, for example, it appears that much of the Street has stopped or won’t trade these names any more. We can’t blame them, as they are only a headline away from potential disaster in a sector which is likely to remain under pressure and suspicion for a while yet. We won’t be seeing any primary from it, that’s for sure!

And as for primary… Spain’s RTE was the cock o’ the north so to say, with a Eur1bn deal at midswaps+82bp for 10-year funding, and Elia Systems likely today (Friday). We had some senior and T2 financials with the Allied Irish T2 deal reportedly 5x oversubscribed – not bad for a single-B rated deal. The BNP T2 deal (Eur750m) was also well-received, and both were trading up on the break.

So, how did it all finish?… The Markit iBoxx IG index was a little tighter for choice at B+152.25bp – unchanged on the week. The HY index was 2.5bp better at B+477.5bp – again barely moving this week. iTraxx Main was up at 71bp and X-Over unchanged at 295bp. The 10-year Bund and UST yields moved in tandem, the difference in 10-years left at 176bp. The 2-year Bund yield was at a record low at the close of -0.39%. US stocks were flattish but European ones were anywhere up to 1% higher (DAX). Copper prices were again lower and oil was volatile in a tight range. The data from the US exhibited some resilience against the global macro headwinds and points to a hike in rates come that December FOMC.

Wishing you all a super weekend, back Monday.

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.