Friday marked a turnaround in the risk-off sentiment that has characterised 2016 so far. This came after iTraxx Main and Itraxx Crossover on Thursday were at their highest levels since mid-2013. Since Thursday's closing price they have tightened 12bp and 40bp, respectively.
Activity in the primary market was rather thin in the Scandi IG market and non-existent in the Scandi HY market, while there were a few EUR benchmark issues from financials. The uplift in risk sentiment might provide a window for more issuers to come to the market.
Last week, banks' AT1 bonds stole the show as the awareness that their coupons are fully discretionary, non-accumulative and are at risk of being cancelled if the bank breaches the MDA grew. Deutsche Bank (DE:DBKGn) was at the centre of the attention and felt obliged to publish updated information about its AT1 payment capacity. Later in the week, Deutsche Bank announced a public tender offer of roughly EUR5bn for some of its outstanding senior unsecured bonds, which we view as another attempt to calm the markets. The Nordic banks are well capitalised and have ample buffers to their MDA level and thus we see low risk of coupon cancellation. Despite this they were also hit by sentiment - from the beginning of the month the AT1s of the six largest financials on average widened 171bp until Thursday and yesterday they had tightened 64bp.
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