Headlines
• Slightly bearish tone in credit markets this week.
• Full throttle ahead in the primary markets.
• New methodology for banks flagged by Moody’s.
• High regulatory activity in the financial market.
Market commentary
After the strong tone in the market last week on the back of the dovish ECB announcement, this week’s tone was more cautious fuelled by sluggish unemployment numbers out of the US and continued geopolitical uncertainty. The uncertainty surrounding the ongoing Russia/Ukraine conflict and its spill-over effects on the European economy got another notch with the EU imposing additional export sanctions against Russia. The Scottish independence referendum, the outcome of which remains highly uncertain, has fuelled separatist movements in other parts of Europe, i.e. in Belgium (Flanders), Spain (Catalonia), and Northern Italy. The uncertainty that such sovereign break-ups would entail has also weighed on spreads.
This cocktail of wobbly issues caused the Itraxx Main and cross-over to widen some 3bp and 12bp, respectively. That said, we stress that spreads and in particular yields remain at very low levels in a historical context. This, coupled with a still benign investor sentiment, should continue to bode well for new issuance activity.
Primary market activity picking up
This week has been littered with new issues ranging across most rating categories, maturities, countries and seniorities. Demand remains very strong in the investment community and most issuers have seen their primary transactions oversubscribed several times. Interestingly, the hybrid bond market was kept alive with an issue from Origin Energy. From the Nordic region it was in particular the SEK market that was on the forefront with issues from Fortum Värme, Heimstaden and Volvo Finance. Finally, Nordea announced its intentions to issue AT1, further expanding this evolving asset class.
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