EU CREDIT DAILY: Negative Yield Woes; China Bank Cuts, VW Talks
(Bloomberg) -- Credit remains buoyant on both sides of the Atlantic this week as primary markets run at a strong pace, but the appearance of negative yields on corporate issuance may soon fuel concerns over relative value and risk-reward dynamics, Bloomberg strategist Simon Ballard writes.
- New issuance may be being front-loaded this week before tomorrow’s ECB decision and as the Fed rate outlook remains anchored; supply volumes may put some pressure on secondary market spreads
- Negative-yielding corporate debt driven by robust demand-supply conditions rather than defensive investor mindset focused on capital preservation
- U.K. economy and Brexit impact back in spotlight as BOE Governor Carney testifies before parliament today
- Risk Appetite Model reaching new territory as volatility evaporates
- Bloomberg Barclays Eur-Agg Corporate index closed yday at 108bps (+1bp); Bloomberg Barclays Eur HY index closed at 363bps (+8bps)
- CDX IG closed -1.5bps at 75.02 in overnight session; iTraxx Asia Ex Japan IG currently -1.5bps at 108.57 and iTraxx Australia quoted -1.1bps at 95.65
NEWS
- Corporate News
- Barratt FY Revenue Rises 13%; Says Positive Start to New Year
- Clas Ohlson 1Q Sales, Operating Profit Below Ests.
- Forterra Says Trading in July, August In Line With Forecasts
- Volkswagen Said in Advanced Talks With Jianghuai on Electric Car
- Tata Motors Says JLR Sales Rise 26% Y/y in Aug. to 36,926 Units
- Financial News
- Tens of Thousands of Jobs Go as China’s Biggest Banks Cut Costs
- Credit Suisse Promotes Chin to Markets Head, Replacing O’Hara
- UniCredit Will Likely Raise Capital, Renzi Says: Les Echos
- State Bank of India Said to Choose Banks for $1 Billion AT1 Bond
- Credit Rating News
- Nvidia Assigned Baa1 Sr Unsecured Rtg by Moody’s; Outlook Stable
- S&PGR Rates Mitsubishi Corp.’s Prop Subord Hybrid Bonds ’BBB+’
- S&PGR Rates Mexico City Airport Debt ’BBB+ (Prelim)’; Otlk Neg
- Other News
- Dark-Pool Firm Started by Bankers to Enter Hong Kong and Japan
- September Fed-Hike Window Starting to Close for Bond Traders
- Fed’s Williams Repeats Call for Gradual Hikes Sooner, Not Later
- Draghi Set to Tell Tale of Stimulus Undercut by Brexit Woes
ANALYST VIEWS
- The mad scramble for primary market corporate risk is an issuer’s dream, as they go out with enticing initial price talk and then ratchet the pricing tighter -- but there was a twist in yesterday’s deals: creditmarketdaily.com
NEW ISSUES
- BAT International $650m Reg S 3Y MS +60
- Commerzbank EU1b 7Y MS +62
- EFSF EU1b 1.375% 5/2047 Tap MS +18
- Glencore Finance EU1b 7Y MS +195
- Henkel Four Part EUR, USD, GBP Deal
- Prudential $725m Perp NC5 Tier 2 Bond 4.375%
- RCI Banque EU750m 7Y MS +55
- Sanofi EU3b Long 3Y, 6Y, Long 10Y
- World Bank GBP650m 6/2021 UKT +22
- European IG credit pipeline here and HY credit pipeline here
- Issuers exposed to S-T rollover and interest-rate reset risk here
- NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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