11th September 2015

Show Me the Money

MARKET CLOSE:
FTSE 100
6,156, -73
DAX
10,210, -93
S&P 500
1,953, +10
iTraxx Main
71p, +-1bp
iTraxx X-Over Index
327bp, 1bpp
10 Yr Bund
0.69%
iBoxx Corp IG
B+143.8bp, +1.5bp 
iBoxx Corp HY Index
B+467bp, +0.5p
10 Yr US T-Bond
2.22%

Splish, splash, I was taking a bath… Nothing boring, fickle or keeping us just ticking over in the corporate bond market on Thursday. We were inundated with heavy levels of issuance, which is now likely going to be enough to close out this week. Friday ought to be a quieter session while next week we will be in full FOMC mode, but where we don’t rule out some decent primary market activity ahead of the long awaited Wed/Thur meetings. Apple Inc was in for a dual tranche funding, plumping for the same maturities (8 and 12-year) as its previous foray into the market. It obviously works for Apple to get more funding away in euros and the market was very receptive, no doubt also enticed by the healthy initial new issue premiums on offer as well as the kudos of holding some Apple paper. And that was against a background of US rate and Chinese growth jitters – again – leading to equity weakness (-1%), a rate cut in NZ and poorer capex data from Japan. At the other end of the scale, Portugal’s EdP was out there with a hybrid issue (sub-investment grade rated) at a very enticing 5.5% yield and a PNC5.5 maturity, while the book wasn’t bad at just under Eur2bn for the benchmark issue. There was a time when EdP was locked out of the market completely along with all other peripheral-based borrowers, circa the 2010 crisis, and they re-opened it for Portuguese borrowers in senior funding with a 5.875% coupon in 2011. It’s a funny old world.

Heaviest day in primary for a while… Apple (clipping a combined Eur2bn) and EdP were kept company by a triple-tranche offering from Shell, as well as deals from Ford Credit Europe,  Estonia’s Eesti Energia (18s and 20s previously tendered) and Carrefour-owned shopping mall operator Carmila. Shell were busy with 4-year funding (floater), a 6.5-year issue and a 10-year at midswaps+67bp and midswaps+90bp respectively for the fixed legs. Shell raised a total of Eur3.45bn. FCE Bank clipped Eur700m in 4-year funding at Euribor+98bp, while Eesti took a larger than anticipated Eur500m in 8-year at midswaps+160bp. Carmila raised Eur600m at midswaps+170bp, also for an 8-year deal. There’s still no sign of indigestion anywhere.

Punch drunk with primary, secondary activity at low levels… And so goes it to type. The plan is to flood the market with copious amounts of issuance and not to worry about the lack of activity in the secondary market. Absence a real crisis that leads to fund liquidations/outflows (actually, it would mean returning to a sustainable growth dynamic such that equities are a better bet than fixed income) few are really concerned with the inaction in secondary. The till is collecting the fees from elsewhere. Most deals are performing and inflows into credit funds need filling. It’s been a very good week in that sense. Elsewhere today, we had iTraxx move wider as the synthetics took their lead from equities. Cash played out in a narrow range with focus clearly elsewhere but spreads were wider. Weakness was in CoCos saw them being up to 0.5-cash points lower (tracking mainly equities), some hybrid paper edged lower in price too, and there was obvious widening in Apple secondary paper by up to 10bp on the back of the new deal.

The iBoxx corporate IG index closed at B+143.8bp and the HY index at B+465bp, while iTraxx Main was up at 71bp and X-Over slightly better bid at 370bp. The S&P closed higher, and that should help us hold steady today.

Here’s hoping for a quieter and reflective Friday.

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.