Headlines:
- Rates lower for longer.
- Strong primary market activity.
- New corporate methodology by S&P.
- Higher capitalisation target at DNB.
Market commentary
It seems the Fed has been convincing in stating that rates will stay low for long despite tapering coming closer. Actually, December tapering is suddenly back as an option due to decent US data released recently. Tapering talks earlier this year spurred immediate spikes in rates, but this time future rate expectations are lower. This is confirmed by expectations on Fed funds rates which are not expected by consensus to increase before November/December 2015 in contrast to earlier this year when Fed tapering talks moved expectations of rate hikes forward. Thus the Fed is happy about the market reaction. Lower rates for longer support the current strong risk appetite and the search for yields will continue to benefit credit markets despite relatively expensive pricing.
The primary market is alive and kicking as more companies take advantage of the low rates before the traditional year-end sluggishness hits the credit markets. In the Nordic region, unrated Finnish telecom DNA brought its inaugural bond to the market (rated BBB- by Danske Credit Research) while EG Group is currently doing a roadshow and a DKK deal may follow. Nordea issued a senior unsecured bond during the week and Danske Bank has announced its plan to issue another Tier 2 bond (fully Basel III compliant) following the EUR1bn issuance in October. Yesterday, DNB announced its intention to issue further capital instruments (to account for around 3.5pp of capitalisation). In terms of volumes, 2013 will be a busy year although records from last year are unlikely to be broken.
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