The month of January ended with a risk-off tone as Coronavirus headlines continued to dominate markets. US stocks and high yield markets gave up all their year-to-date gains, while investment grade credit spreads finished the week 8-10 basis points wider. Energy credits underperformed as oil prices fell toward 12-month lows. New issue markets were understandably subdued as investors continue to digest high volumes from the beginning of the year. US Treasuries rallied significantly, and 10y Treasury yields finished 11bp lower near 1.50%. Despite the difficult tone, the US Federal Reserve left the benchmark rate unchanged at their latest meeting but opened the door for a rate cut later in 2020. Overseas the UK was officially, if somewhat symbolically, removed from the European Union with little disruption. Difficult negotiations are still to come; however, with more volatility expected as the year progresses.
Canadian credit followed international markets lower, but trading remained relatively orderly and spreads finished a modest 3-5bp wider. Despite the widespread volatility, new issue markets remained open, and three issuers were able to bring bonds. Scotiabank issued a CAD bail-in while Morgan Stanley brought a 3-year FRN Maple. AutoCanada was a rare high yield issuer that printed CAD 125mm of a 5-year note at a yield of 9%. The pricing proved too attractive for yield-starved investors with the bonds trading up an impressive $3 on the first day of trading.