- by Suki Mann
|🇩🇪 10 Yr Bund
|iBoxx Corp IG
|iBoxx Corp HY
|🇺🇸 10 Yr US T-Bond
|🇬🇧 FTSE 100 6090.04, (-1.55%)||🇩🇪 DAX 12901.34, (-0.71%)||🇺🇸 S&P 500 3372.85, (+0.12%)|
But too much to juggle…
We’re not out of the woods in any way but we have let some much needed steam out of the pressure cooker. Trade talks/Hong Kong/Middle East/Brexit/macro were all beginning to get too much and were clearly weighing on markets. So some of the heat has been let out courtesy of – or hope that we will see – some sort of breakthrough (a partial deal?) on the US/China trade talks which began on Thursday. Unfortunately, the Turkey invasion into Kurdish held areas in northern in Syria is doing its utmost and might warrant a degree of caution again.
It’s not been all one-way on the Brexit front, either, as the emerging headlines on the potential for EU concessions gives rise to (small?) hopes that a deal can still be reached even at this very late hour. As usual, it comes with a big, fat warning sign because it could all go awry; The day of reckoning is nigh. It’s no wonder that the week has been a little scatty, with so much for investors to chew on.
Away from that, the UK looks like it will have avoided recession in Q3, as the economy grew 0.3% in the 3 months to August and beat all market forecasts (the UK economy shrank 0.1% in August).
However, we’re in the midst of a synchronised global slowdown and the impact of it is being felt everywhere, to varying degrees. Germany, for instance, will almost certainly record a technical recession in its economy following a massive slowdown in manufacturing during the summer months, as well as the recent slowdown in the service sector. The Eurozone as a whole will not be far away.
Enel steals the primary limelight
Once gain, it was another not-so-busy session in primary, but that cleared the way for borrowers looking to get their deals away without too much distraction.
The sole IG non-financial corporate deal in the market came from Enel which offered up a three-tranche, innovative sustainability bond. The Italian borrower took €1bn in a long 4-year at midswaps+55bp (-20bp versus IPT), €1bn in a long 7-year at midswaps+68bp (-27bp versus IPT) and €500m in a 15-year at midswaps+103bp which was also -27bp versus the initial guidance. Total books for the offering came in at around €8.5bn.
Other deals of note in the session came from Ireland’s tap of its 1.35% 2031 green issue, as the sovereign took €2bn at midswaps+24bp. Property investment group Altarea Cogedim issued €500m in a long 8-year at midswaps+215bp (books €725m).
Brexit and trade hopes push markets higher
The earnings season is up next and that might act to put a brake on the level of deal flow in the primary market as corporates enter the blackout period. However, the total for the IG non-financial supply (year to date) has now risen to €262.5bn and we are just €22.5bn away from seeing out 2019 as a record year for issuance – ten years after the last one. Exciting times.
Nevertheless, we should get over the line quite comfortably as we target something close to, or in excess of, €300bn for the year. Issuance in November, for example, has averaged over €30bn in the 2014-2018 period. We might get a leg-up (in sentiment, spreads, costs) from the ECB’s QE €20bn monthly purchase programme which starts Nov 1st.
The markets, however, were boosted by hopes that a breakthrough was possible in the Brexit talks. Equities ended off their highs but were up across the board with the FTSE up just 0.3% (sterling rallied hard, up 1.5% versus the dollar), the Dax gained 0.6% and US markets around 0.5% higher, as at the time of writing.
Gilts sold off as safe havens lost their lustre, and the 10-year yield rose to 0.59% – a massive 14bp higher. The 10-year Bund yield rose to -0.47% (+8bp), while US Treasuries also sold off (on trade hopes) with the 10-year benchmark left to yield 1.66% (+7bp).
The improved tone helped credit index and protection was better offered as costs fell. iTraxx Main was 1.4bp lower by the close at 56.4bp and X-Over closed at 247.6bp (-5.4bp).
In cash, IG moved tighter and the iBoxx index closed at B+124.4bp (-1bp) while the AT1 index closed at B+507bp (-10bp). The high yield index closed 8bp tighter at B+425bp (-7bp), in a quiet session again with flood and volumes at a premium.
Have a good day.