IGM Credit, IGM FX and Rates
19 Oct 2020
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** Primary issuance accelerated significantly on Wednesday as issuers capitalised on the small issuance window ahead of Thursday's looming event risk (see below). In total EUR24.135bn printed across all sectors, compared to just EUR2.75bn on Tuesday and EUR22.2bn during the whole of last week. In fact, Wednesday's EUR24.135bn marks the highest EUR volume day of the year so far, surpassing the EUR22.18bn issued on 16th May. For the breakdown of Wednesday's supply see the IGM DAILY EUR NICS & BOOKS
** German automaker Volkswagen and US telecommunications conglomerate AT&T were vying for attention in the corporate market. The former priced its first hybrid bond since it was caught up in an emissions scandal in Sept 2015 courtesy of EUR1.5bn PNC5.5 and EUR2bn PNC10 lines which attracted combined demand of over EUR11bn. Elsewhere, AT&T secured EUR7bn of funding via a five-part transaction to help fund its acquisition of Time Warner, with the deal marking the third biggest IF corp bond issue in the single currency this year. See the IGM CORP SNAPSHOT for more on these including relative value analysis
** No fewer than five SSAs printed new Euro trades on Wednesday for a combined EUR11.5bn, whilst there was also some USD paper courtesy of KfW. Supply in the single currency was spearheaded by the Republic of Italy which printed a new syndicated EUR6.5bn Mar 2048 line at BTPs +10, attracting a blowout book of over EUR23.7bn in the process. For more on all the day's SSA trades see IGM's SSA PREVIEW
** Berlin Hyp had the covered market to itself with the borrower printing a EUR500m no grow Oct 2023 Green Pfandbrief at m/s -14 having tweaked pricing from m/s -12 area guidance on the back of books over EUR900m. For more on this and details of an addition to the pipeline, see IGM's COVERED SNAPSHOT
** FIG issuance drew a blank Wednesday leaving the asset class with just the one transaction for the week, namely Sumitomo Mitsui Financial Group Inc's EUR1.25bn two-parter from Tuesday. In other news, there was reaction to the news of Santander's acquisition of Banco Popular whilst secondary spreads remained stable. For more see the IGM FIG SNAPSHOT
Thursday's supply prospects
With headline event risk in the form of the latest ECB meeting and the UK Election, supply is likely to be kept to a minimum on Thursday.
This is reinforced by the near-term pipeline where there was just the one confirmed deal at the time of writing, a Dollar issue from NRW.Bank (Aa1/AA-/AAA/AA+). The borrower is taking IoIs for a USD500m 2yr floater at 3mL +7 area IPTs via Barclays, HSBC and RBC.
Wednesday's broader market developments
** EU risk assets started cautiously before holding onto late AM gains aligned to a BN report that the ECB draft forecasts point to a cut in the inflation outlook through 2019
** EUR weakened as a result. EUR/USD hits lowest level this week, while EUR/GBP slides to an almost one-week low
** Brent dips back below US50, but respects Tuesday's intra-day low ahead of Wednesday's EIA crude inventory data
** Govvies - EGBs broadly recovered from AM sell-off following the aforementioned BN report, while the BTP curve underperformed as market absorbed the new syndicated 30yr BTP issue which received orders of over EUR23.7bn
** iTraxx Main and Crossover both post fresh series tights having initially widened in the morning
Market snapshot (14.29 BST)
SXXP +0.55% / SX7P +1.31%
EUR/GBP -0.72% at 0.86854
GER 2yr -0.1bp at -0.750% / 10yr +0.3bp at 0.252%
Brent -1.12% at USD49.56
iTraxx Main -1.1 at 61.2 / Crossover -2.6 at 247.2
What to watch Thursday
** Data: German Industrial Production is seen rebounding in April, UK May RICS House Price Balance is seen softer, while final Eurozone GDP should match the 2nd estimate at a steady 0.5% QoQ
** Events: Spotlight on ECB policy verdict (no change expected) and subsequent Draghi presser with a dovish tone envisaged after Wednesday's BN report that the ECB draft forecasts point to cut in inflation outlook through 2019
** Supply: Ireland to sell EUR1bn 2026 and 2045 bonds
IGM Credit, IGM FX and Rates
19 Oct 2020
Recall, we delivered the below predictions respectively in two issues of this publication last month: - 11 September -- "Despite the downward pullback of the yield in recent days, we still stick with our cautiously bearish view on the bonds. We won't be surprised if the 10-year CGB yield finally reaches 3.25% or higher in Q4 if the prevailing mini-deleveraging cycle continues". - 18 September -- "In our view, continued reluctance of PBOC to act generously will reinforce the market perception that monetary easing cycle is already over and borrowing costs will be gradually creeping upward. In case of that, there is a good chance we will see a strong selloff in bonds in October". Basically, both predictions have already materialized as 10-year CGB yield already reached as high as 3.23%, fresh high of the year, in the middle of this month (October). That's 11bp higher than September 18's closing level...
Topics Industry News