17th November 2015

Man in the mirror

MARKET CLOSE:
FTSE 100
6,146, +28
DAX
10,713, +5
S&P 500
2,053, +30
iTraxx Main
74.5bp, +0.5bp
iTraxx X-Over Index
315.5bp, +5,5bp
10 Yr Bund
0.53%
iBoxx Corp IG
B+153.3bp, +0.5bp 
iBoxx Corp HY Index
B+483.8bp, +3bp
10 Yr US T-Bond
2.27%

A day for reflection… Monday was always going to be a difficult day. Digesting the weekend’s events took priority, and the sombre mood was reflected in the session. Equities moved in a narrow range, secondary spreads were effectively unchanged to a touch better and the primary window was closed as market participants paid their respects to the Paris victims. The two bits of macroeconomic news that stuck out were the eurozone inflation numbers for October being revised up to 0.1% from zero, and the price of copper falling again to a new multi-year low. 0.1% is absolutely nothing to cheer about and within a noise (error) limit, but the drop in the copper price is more worrisome. The Chinese economy could be falling off a cliff, and the repercussions of this will be felt globally. Growth, demand, supply, rates, valuations and inflation will all be affected and, of course, they all heap continued pressure on the eurozone and we think even its existence as a single currency zone in its current format. That might be a long time off still, as the political will to keep it going remains resolute, but the cumulative impact of poor global economics allied with an increasingly difficult geopolitical arena are starting to add further pressure points. Position for low rates and low growth ion the eurozone; be comforted by the low default rate – and clip that coupon.

Ready for greater activity on Tuesday… Spread markets closed out effectively unchanged. Equities were also slightly better for most of the session so had little impact on cash credit but we saw previously under pressure oil/commodity-linked corporate bonds finding some support as oil prices rose early on. There may have been a touch of weakness around corporate hybrids, but elsewhere the session closed out with little altercation. Into the close, oil was back down at fresh multi-year lows, but with US stocks strongly up overnight, it ought to be an upbeat start for valuations in Tuesday’s session! Credit generally moves slowly in an illiquid cash market.

Light fingered markets… Low volume and activity made sure that there would be no major lurches in spreads. Eventually, the Markit iBoxx IG corporate bond index closed at B+153.8bp (+0.5bp) and the HY index at B+483.8bp (+3bp). For iTraxx, Main was up a touch at 74.5bp and X-Over up at 315.5bp. The 10-year Bund yield edging lower to 53bp, while the 10-year Treasury was unchanged at 2.27%, leaving the spread at a new record high of 174bp.

We look for a decent session today, with the big move in US stocks (+1.5%) the main driving force. 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.