25th November 2019

Solid primary

MARKET CLOSE:
iTraxx Main

48.3bp, -1.6bp

iTraxx X-Over

228.6bp, -5.9bp

🇩🇪 10 Yr Bund

-0.35%, unchanged

iBoxx Corp IG

B+117bp, -1bp

iBoxx Corp HY

B+399bp, -4bp

🇺🇸 10 Yr US T-Bond

1.76%, -2bp

🇬🇧 FTSE 100

5415.50, (-1.18%)
🇩🇪 DAX

9525.77, (-0.47%)
🇺🇸 S&P 500

2488.65, (-2.54%)

Good news line up…

This much curtailed week (Thanksgiving, Black Friday) got off to a fine start and there is little reason to believe that we won’t stay in a positive mood over the next couple of sessions. Markets have chosen to be upbeat (again) on the trade talks, while the pro-democracy councillors’ huge success in local elections in Hong Kong will give rise to hopes that the authorities might yield much ground on the pro-democracy movements’ expectations.

In the UK, we now have all the election manifestos out and we believe (as do the polls) that we have the non-trivial prospect of a majority for the Conservative Party which then gives the markets reduced levels of uncertainty through the Brexit expectations. Sterling rose, the FTSE rose and even Gilts were slightly better bid.

We had deals again and the session wasn’t quite left free for credit investors to focus on the Stryker Corporation three-tranche deal. That’s because we had deals also from Arkema and Tesco in non-financials, while RBI’s covered bond made up the other of the day’s relatively light primary activity.

The positive tone and rise in equities helped credit spreads to retain their stability – or moderate tightening bias, in the higher beta segments while IG spreads managed to hold steady/tighten after pretty much moving wider in almost every session for over a week.

That’s going against the grain, given that the ECB has been busy lifting paper over the past three weeks (weeks 133 onwards in chart). The latest reported weekly haul came in at €825m (€966m the prior week) with the central bank’s holdings of IG corporate debt up at €181,928m.
ECB Purchases


Non-financial day in primary

The smaller deals came from French chemical group Arkema SA which issued €500m in a no grow 10-year at midswaps+70bp. That final pricing was 30bp inside the initial price talk and books were up at a very healthy €2.7bn. Tesco followed with €750m in a 6.5-year offering at midswaps+110bp which was 35bp tighter versus the initial talk, with demand for the deal up at a sprightly €3.6bn.

But it was Stryker Corp which was the main focus. The US borrower’s 3-tranche deal for a combined €2.4bn came courtesy of a 5-year leg for €850m at midswaps+55bp (-20bp versus IPT), €800m in a long 9-year at midswaps+75bp (-25bp versus IPT) and €750m in a 12-year maturity priced at midswaps+90bp (also -25bp versus IPT). Books came in a combined €7bn+.

So another €3.65bn in the IG non-financial issuance bag took the monthly deal total to €32.7bn and the year to date total to an incredible €310.7bn.


Little news, markets positive

Even as data showed that world trade declined again in September (-1.3% versus August), the S&P reached new intraday record highs and European stocks registered gains of up to 1%. There was otherwise little newsflow to sink our teeth into.

Rates were mixed, with small moves seen, although the market was better bid for choice. The 10-year yields on the main benchmarks closed at 0.69% for Gilts (-2bp), 1.76% for the US Treasury (-2bp) and -0.35% on the Bund (unchanged).

In secondary cash, IG markets were slightly better bid and the iBoxx index tightened a basis point to B+117bp. In the AT1 market, the index closed at B+455bp (-9bp) with the high yield index at B+399bp (-4bp).

The synthetic indices also made hay, protection costs falling with iTraxx Main at 48.3bp (-1.6bp) and X-Over 5.9bp lower at 228.6bp.

Have a good day.

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.