Last week the positive sentiment continued on the European credit markets, witnessed by a continued spread tightening trend. A few weeks back credit indices peaked at the highest levels since mid-2013. Since then iTraxx Main and iTraxx crossover have tightened some 15bp and 70bp, respectively.
Last week we saw a sharp global increase in primary activity. Senior financials and large US corporates led the party (Apple (O:AAPL), IBM (N:IBM), Honeywell etc.). We also saw new Scandi senior financial transactions from Nordea, SEB, DNB and Sampo. New issuance concessions generally were around 10-25bp. We still do not see new supply from Scandi high-yield/financial-subordinated issuers, which have been virtually non-existent in 2016. Provided markets are stable, primary activity is likely to pick up over the coming weeks.
The UK's EU-exit risk ('Brexit') is emerging as a new important credit theme following the split in the UK's ruling party over future EU-membership. This theme will stay for most of H1 16 since the UK referendum will not be held until 23 June. In addition, a large proportion of voters may be undecided for some time. Expect volatility in spreads to increase for UK-linked credits.
The broader credit sentiment from the start of this week was buoyed by stronger commodity markets (e.g. iron ore and oil). The move was led by a ramp up of Chinese steel production and recent indications from OPEC and certain non-OPEC members for some type of oil-supply curbing agreement being reached during the coming months.
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