27th November 2019

Thanksgiving flourish

MARKET CLOSE:
iTraxx Main

47.7bp, unchanged

iTraxx X-Over

223.3bp, -3.7bp

🇩🇪 10 Yr Bund

-0.37%, unchanged

iBoxx Corp IG

B+115.3bp, -0.5bp

iBoxx Corp HY

B+389bp, -4bp

🇺🇸 10 Yr US T-Bond

1.77%, +3bp

🇬🇧 FTSE 100

5510.33, (-5.25%)
🇩🇪 DAX

9632.52, (-3.68%)
🇺🇸 S&P 500

2541.47, (-2.42%)

Not bad AT all…

That was a decent blast of pre-Thanksgiving deals as the market made a sterling effort on Wednesday, and all the signs are that we’ll possibly get a good stream of issuance still next week, before we finally close down for the end of year. The pipeline might look more sparse at the moment, but there should still be a couple of weeks worth of business left in 2019.

We think that a busy early December is not impossible. Right now, we’re closing out November with IG spreads just a touch wider for choice and monthly returns very slightly negative, but still up at 6.4% for the year (Market iBoxx index). Not bad. High yield spreads are 130bp tighter this year – and returns up at 9.4%. Not bad, either. Still, they’ve all been left in the shade by an AT1 market squeezed with spreads 270bp tighter for the year, and total returns up at a stunning 14.3%.

With the UK election closing in, and the view that Boris Johnson’s Conservative government should win with a comfortable majority, we have seen sterling creep higher. The FTSE is beginning to gather some upward momentum, too, having underperformed other European bourses by some margin this year.

It’s probably no coincidence the sterling corporate bond risk has outperformed euro IG, spreads tighter by 4bp the month (iBoxx index, euro index +4bp) while investors in this longer duration market sit on total returns of at least 11%.

Anyway, we’re going to sit through a couple of very quiet sessions, with the only deal flow likely going to be the pricing of any high yield issues. That apart, markets will effectively be closed on Thursday and the US half-day Black Friday session isn’t going to flush out many – or any – deals in primary.

For Wednesday, there was a smattering of deals – predominately in IG markets across the financial and non-financial sectors. Orsted’s green hybrid was notable for its 100NC8 structure while markets otherwise were trading with a positive bias carried by Trump’s overnight comment that a phase one trade deal was just about ready to sign.


Primary window about to close

Deutsche Telekom: Increased €600m deal

Deutsche Telekom kicked us off with an increased €600m 30-year maturity offering at midswaps+140bp which was at the initial price talk off books up at just €900m. Next up was Gas Networks Ireland with a €300m no-grow 5-year priced at midswaps+40bp which was 20bp inside the initial guidance amid interest of €1bn for the deal.

We had Danish wind farm group Orsted issue that 100NC8 hybrid structure priced to yield 1.875% (-50bp versus IPT) for €600m, with interest up at a significant €4.5bn.  We wrapped up the IG non-financial corporate issuance for the day with Spain’s FCC Medioambiente Holding. They issued €600m in a 4-year at midswaps+110bp and €500m in a 7-year at midswaps+180bp, with the deals 20-25bp inside the initial guidance and combined books were up at €3.2bn.

In senior financials, we had four borrowers. Commerzbank took €500m in a 7-year preferred at midswaps+68bp (-12bp versus IPT), BNP followed with €750m in a 6.5NC5.5 green non-preferred at midswaps+75bp (-20bp versus IPT) and Intesa lifted €750m in a 5-year preferred at midswaps+100bp (-20bp versus IPT). We finished with a £350m in a 4-year at G+93bp from Bank of Nova Scotia.

The day’s other deals of note included Merlin Property’s €500m 15-year offering at midswaps+165bp (-15bp versus IPT), EDF followed up its euro-denominated hybrid deal earlier in the week with $2bn of a 50-year to yield 4.5%, while state-owned RAI-Radiotelevisione Italiana issued €300m in 5-year at midswaps+165bp (-45bp versus IPT, books at €2.7bn).

So, with Thursday and Friday likely to draw blanks, it looks as if we close November with a record €314.8bn issued year to date in IG non-financials and November’s issuance at €35.8bn – the best November since 2014. The €163bn issued in senior financials makes this year the best since 2015 already with it also being the best November since 2014.

For the record, the €72.25bn issued in the high yield market this year is the second best for any year, and we think that there is every chance that we’ll get the €2.75bn needed over the next couple of weeks for this year’s supply to beat the record from 2017.


Better but quieter into the break

John Deere: Profits warning

The big data print of the day was that US GDP number fro Q3 which came in a better than expected 2.1% (expectations 1.9%) while durable goods orders for October also beat expectations. The US economy seems to be hanging on for dear life while others flounder. Mind you, bellwether US farming machinery giant John Deere warned on 2020 profits on trade uncertainty and worsening global farming conditions (making investment more cautious).

Overnight, we had seen that Chinese industrial profits declined by 9.9% (YoY), for example, in one of the biggest – if not the biggest- monthly decline ever reported.

Anyway, the US managed to hit a fresh intraday record high in the Nasdaq and S&P indices, as did the Dow – although the latter was doing its best to give it all back, as at the time of writing. In Europe, the FTSE gained another 0.35% and moved to its highest level since August while the Dax rose by 0.4%. Sterling had another good session, the euro not so.

In rates, Treasuries edged lower and the yield pushed on to 1.77% (+3bp) while Bunds closed unchanged to yield -0.37% and Gilt yield moved to 0.68% (+3bp).

Protection costs were better offered for choice (lower), leaving iTraxx X-over 3.7bp lower at 223.3bp and Main unchanged at 47.8bp.

In cash, we edged tighter in IG with the iBoxx index left at B+115.3bp (-0.5bp in the session), with the CoCo index at B+442bp around 8bp tighter in the session. As for high yield, the index closed at B+393bp (-4bp) in a positive day for cash markets, but very quiet.

Have a good day. We will be back on 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.