12th November 2019

Time to count one’s chickens

MARKET CLOSE:
iTraxx Main

48.1bp, -0.6bp

iTraxx X-Over

230bp, -0.5bp

🇩🇪 10 Yr Bund

-0.25%, unchanged

iBoxx Corp IG

B+110bp, unchanged

iBoxx Corp HY

B+386bp, unchanged

🇺🇸 10 Yr US T-Bond

1.94%, unchanged

🇬🇧 FTSE 100

7403.92, (-0.44%)
🇩🇪 DAX

13579.33, (-0.62%)
🇺🇸 S&P 500

3337.75, (-1.05%)

Christmas might have come early…

It wasn’t the easiest session to figure out and trade through – until the US opened anyway. The violent scenes in Hong Kong previously, developments in the UK election, needing to think about the German Q3 GDP print due later this week and some apprehension (again) around the US/China/Europe trade tariff situation all saw to that.

It would have been easier, for credit investors anyway, had we seen a significantly busier primary market. Nevertheless and while an end of year feel is beginning to emerge, we still set fresh record highs in US equities. There was an uplift to European equity and credit markets, while rates were once again better offered for choice. That’s becoming all too often a case.

Before that, we had opened the week with the record-breaking run in US equities coming to an end on concerns about the escalating violence in Hong Kong. The risks are enormous for the former UK territory as Asia’s premier financial hub and otherwise, as well as and its inhabitants. We await a US response.

In the UK, the election took an interesting turn, as the Brexit Party pulled back from contesting Tory seats – perhaps giving a small boost to Boris Johnson’s need and drive for a majority in order to pursue his Brexit deal. So we have Leave and Remain alliances with the odds increasing that we possibly emerge from the December 12 election Conservative majority. With the uncertainty of a hung parliament potentially receding, sterling at least has a bid behind it.

The ECB’s corporate bond holdings, under its CSPP programme, had risen to €180,137m in the last week, as reported on Monday. That haul comes after 133 weeks of combined activity over the two programmes. So the ECB added €2,780m in the first week proper of its new QE purchase programme.


Riding off into the sunset

The day was full of covered bond deals. Away from them, we still managed to get deals away across all sectors. In the non-financial sector, it was Harley-Davidson and BP. In senior financials we had Intesa in for benchmark funding while AIB Group went for subordinated funding. There were a couple of high yield deals in there too.

Harley Davidson: €600m in a 5-year

US motorcycle group Harley-Davidson issued an increased €600m in a 5-year at midswaps+110bp. The books were up at a massive €4.75bn and final pricing was 30bp inside the initial mumble. They were followed by BP which issued a 15-year, higher than anticipated €900m at midswaps+70bp which was 20bp inside the initial talk.

In senior financials, Intesa Sanpaolo issued €1.25bn in a 7-year senior preferred at midswaps+110bp which was 15bp inside the initial guidance off a €2.5bn book.

For subordinated debt, the €500m AIB deal was a 10NC5 Tier 2 structure at midswaps+215bp, which was 25bp inside the opening guidance and garnered a book of €3.5bn. There was also a smaller deal from Nova Ljubljanska Banka for €120m for a 10NC5 Tier 2 priced to yield 3.65%.

Final terms for the Sazka Group’s offering saw it take €300m in a 5NC2 senior deal priced to yield 4.125% (-12.5bp inside the initial guidance). Nordic-based real estate group Heimstaden Bostad AB went for hybrid funding in a sub-investment grade offering rated €800m deal in a perpNC5.25 offering, priced to yield 3.25%.

Those deals took the total year to date high yield total to over €65bn and now just €7bn short of the annual record – and we think the record is safe for this year.

The other deal of note came from Heathrow Finance PLC in sterling, where £300m was issued in a short 10-year senior secured deal to yield 4.125%.


Equities still the story

Equities in Europe had a better day. There seemed to be much clinging on to the -2.1 latest reading in the German ZEW survey, against -22.8 last time. The hope is the recent less bad data from Germany  (stabilising exports and manufacturing orders) are proferring some sort of green shoots of recovery. The German GDP print for Q3 is up next.

After a touch-feely start, European equities edged higher still helped in no small part by the US, where the market moved back into record-breaking mode. At the time of writing, we were through 3,100 on the S&P index as all three indices sat in record space. The Dax and FTSE were higher by 0.65% and 0.52%, respectively, at the close.

Rates didn’t go into major sell-off mode. Maybe we have found a floor. The 10-year Bund yield was left at -0.25% (unchanged), the equivalent maturity Gilt was yielding 0.81% (unchanged) and the Treasury was also unchanged to yield 1.94%.

Credit index was better offered (lower), for choice, and left iTraxx Main at 48.1 (-0.6bp) at the close, with X-Over edging to 230bp (-0.5bp).

As for the cash market, secondary wasn’t buying into any better bid and we saw the Market iBoxx IG cash index unchanged at B+110bp, with the higher beta AT1 market index at B+452p (+2bp). The high yield index was unchanged as well, closing the day marked at B+386bp. Not terribly exciting.

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.