With markets spending Tuesday's session firmly in the shadow of the US presidential election, it was no big surprise to see primary activity remain muted with just one Euro denominated deal launched in the form of a covered bond from ING-DiBa which was teed up Monday (more on that below).
That leaves the focus on what comes next and the hope will be that whatever transpires at the ballot box on Tuesday, sufficient certainty is forthcoming to allow markets to rapidly reprice and for fundraising efforts to resume.
The slowdown seen in primary markets this week was, of course, already visible last week where the EUR10.52bn of EUR-denominated issuance that priced represented a 72% drop on the week prior (for more detail see VOLUME REPORT) . However, with last week comprising two partial European holidays, a flurry of central bank verdicts, NFPs and challenging risk tone, reasons for lower volumes were not exactly hard to find and thus gives ground to treat last week as something of an outlier.
In any case, while supply is currently depressed, it's worth recalling that investor inflows into Euro denominated IG funds picked up sharply last week, accelerating to their fastest pace in ten weeks (see EPFR). That would seem to speak of the lack of alternatives that has been an enduring and underpinning factor helping credit for months, and based on the latest evidence, that's yet to change. It's also fair to say that those predominantly corporate issuers that did venture out last week seemed to have little trouble in printing, although investors were perhaps a little more discerning on account of the more challenging backdrop.
ING gets in ahead of election result
As previously mentioned, the only Euro deal to materialise on Tuesday came courtesy of ING-DiB. The borrower initially mandated the EUR500m no grow 10yr mortgage backed covered transaction on Monday before going live with the deal on Tuesday with initial guidance of m/s -12 area via CA-CIB, Commerzbank, Danske Bank, ING and LBBW.
Final demand was hardly a blowout at above EUR750m (excluding JLM interest), but this was sufficient for the issuer to tighten pricing into a final reoffer of m/s -15 via revised guidance at m/s -14 area.
This equated to some economic funding for ING-DiBa with fair value pegged at around m/s -15/-16, suggesting the deal priced with a 1bp NIC at most.
Looking ahead, and depending on the election result and any subsequent market volatility, we could see more Euro covered supply this week with Nordea Mortgage Bank and Australia and New Zealand Banking Group both starting roadshows on Monday, whilst Caja Rural de Navarra began canvassing its credentials to investors ahead of a planned Green covered bond last Friday.
Risk tone cautiously positive although conviction low
While Monday was characterised by an aggressive rally in risk assets, Tuesday was more sedate and while the previous day's gains were not materially extended, there was little sign of an abrupt reversal either where forces seemed to have reached a temporary state of equilibrium.
As at 15:15 GMT, that left iTraxx Main and Crossover wider by 0.79 and 3.28 respectively, while Stoxx50 was in the red by 0.11%. Across the pond. S&P500 was down 0.26%, having rallied 2.22% Monday.
Event risk to watch out for on Wednesday
The opening tone will be set by the outcome of the US Presidential election with results due in the early hours of Wednesday morning.
Markets already appear to be pricing in a Clinton victory with the S&P500's aforementioned 2.2% higher close on Monday seeing the index recover more than 70% of the 3.07% prior 9-day losing streak.
Further advances are likely however should this outcome actually materialise, although the bigger reaction will be to a Trump win which would send markets into freefall. The winning candidate needs 270 of the 538 total electoral College votes to become President.
Meanwhile, data is likely to be largely side-lined again. There are only a few releases scheduled with UK Trade figures for Sep perhaps the most interesting, estimated at a deficit of GBP3.95bn from -GBP4.73bn previously.
The European Council is due to reveal its latest economic forecasts, while there is no shortage of central bank speakers with ECB's Praet, Nouy, Coeure, BoE's Gracie, Haldane and Fed's Kashkari all on the agenda.
Supply-wise, Germany hopes to raise EUR5bn via 2018 bonds and the US plans to sell 10yr Notes with the aim of raising USD23bn.
Aside from the aforementioned US impulses, earnings could also help provide market direction with 23 Stoxx600 and 4 S&P500 companies due to report.
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