Global markets continued to march upwards as optimism on US-China relations and a solid start to the earnings season kept the momentum going. US credit rallied steadily throughout the week, fuelled by successful new issues, improving liquidity, and tenuous progress on US/Chinese trade relations. The primary market printed just over $25bn of paper this week with major banks like Citigroup, JPM, Wells Fargo and Morgan Stanley all launching deals after posting mixed Q4 earnings reports. Across the pond, UK Prime Minister May had a busy week, facing a Brexit vote defeat while surviving a “no confidence” vote the following day. UK banks rallied on the news as traders anticipated a delay of the March withdrawal deadline and increased possibility Brexit might not happen at all.
Canadian credit felt robust despite rising diplomatic tensions with China. Spreads generally tightened by 5 or more basis points, and the positive tone enabled patient issuers to launch some long-awaited deals. Ontario Power Generation printed a 30-year deal that came at a significant concession, ending the week 13 bp tighter as investors appear starved for long-term paper.
Global credit continued to grind tighter last week, buoyed by news on Friday that Congressional leaders reached a temporary agreement to reopen the US government. Credit curves steepened with 10y bonds trading 5 basis points tighter while 3-5y bonds traded up to 15 bp tighter. Investors have been buying secondary paper as new issue supply has underwhelmed expectations, and dealers have seen inventories significantly reduced. JPMorgan led the way on the new issue front last week, with a $2 billion 8-year bond deal that priced at the tight end of expectations but still ended the week 7 bp tighter.
Canadian credit followed the theme with investors reaching for paper and dealers scrambling to cover shorts. Credit spreads were generally 5-10 basis points tighter across all sectors. Three new deals priced, with Algonquin Power earning deal-of-the-week status with a 300mm 10y green bond priced at a spread of +264. The deal generated significant demand from a multitude of clients and finished the week trading 18 bp tighter.
Decent corporate earnings and a surprisingly dovish US Fed spurred global credit markets to continue the 2019 rally last week. On Wednesday the Fed appeared to acquiesce to White House pressure, holding rates steady and suggesting they would be ‘patient’ with future rate hikes. Chairman Powell went even further in his post-meeting press conference, stating that the current level of interest rates is within the range of neutral policy. That’s a stark contrast to just 3 months ago when Powell declared rates were ‘a long way from neutral’. Post-announcement the US rate curve steepened while credit rallied. Friday’s US jobs report surprised to the upside, and continues to allay fears that the economy is slowing. BMO became the second Canadian bank to issue “bail-in” bonds in the US market, printing a 5y note at +92. The deal was met with a decent buyer base from both US and Canadian investors and traded a few basis points tighter on the break.
Canadian credit continues to perform as strong earnings and a lack of primary supply pushed secondary paper tighter. Spreads tightened 5-7 basis points for the week led by Financials and REITs. Utility company Bruce Power was a notable underperformer as recent issuance from comparable Algonquin Power placed significant selling pressure on the name. Wells Fargo surprised investors on Friday with the first Maple deal of the year, printing $1bn of a 5yr note at +132. The deal priced relatively cheap to US WFC notes and rallied tighter in secondary trading.
Signs emerged last week that the global risk rally may be running out of steam as macroeconomic unpredictability crept back into investors’ minds. The State of the Union address on Tuesday was deemed underwhelming as Trump was unwilling to allay fears of another government shutdown next week. Suggestions that US and Chinese leaders would not meet until the end of the month increased chances of a prolonged trade war between the two countries. In Europe, growth expectations continue to decline amid signals that Italy may already be in recession. Scotiabank became the second Canadian bank in two weeks to issue a US $ bail-in note. The new 5-year bond priced right on top of the recent BMO issuance and struggled to hold new issue spread given the generally soft tone.
Canadian credit was similarly affected by global events but managed to close the week better given solid technicals. High beta financials and maples underperformed while deposit notes and utilities were mostly tighter. Canadian National Railway was the sole Canadian issuer of the week, printing 800mm between two tranches. The deal priced right on the screws, trading about 1 bp wider at the end of the week.
Credit markets maintained a positive trajectory throughout the week as another government shutdown was avoided and US-China trade talks reportedly made progress. A disappointing retail sales number on Thursday, the lowest print in ten years, sent US treasury yields tumbling back towards the lower end of their 6-week range. Credit spreads edged tighter throughout the week but were hindered somewhat by steady new issuance. The investment grade primary market printed just under $40bn of new paper this week, highlighted by Altria’s $11.5bn jumbo multi-tranche deal to finance its acquisition of electronic cigarette company JUUL. The deal managed to build a $50bn book and traded up to 12 bp tighter than issue. Away from Altria however concessions were light and often there was not much value to be found, adding to signs the current risk-rally may be close to running its course.
Canadian credit traded in a narrow range as a solid slate of earnings and repercussions of positive trade talks balanced out surprisingly weak manufacturing sales. Investors continue to await new issue supply to dislodge sleepy markets as some of the usual suspects (i.e. the banks) are finding cheaper sources of funding in foreign markets. Brookfield Properties was the only deal this week, printing 350mm of a 7yr at a very modest concession. The deal was trading 6 bp tighter by the week’s end.
Global credit edged modestly higher last week on hopes that US-China trade negotiations will show meaningful progress. US credit markets lagged other markets as new issue supply combined with a holiday-shortened week stemmed any meaningful rally. European credit, on the other hand, continues to move tighter on hopes the British government will choose to delay rather than face a messy “hard” Brexit. The new issue market kept up its torrid pace, and with new issue concessions proving elusive investors are forced to be selective.
Canadian credit enjoyed a positive week with Energy leading the way on higher oil prices and REITs performing as recent new issues demonstrate the depth of demand for the sector — two new deals priced for a total of $1.45bn. Enbridge Pipelines issued $1.2bn of 10y and 30y tranches while Artis REIT issued a small 2yr fixed with a large concession to secondaries. Both deals performed well with Artis, in particular, finishing the week 12 basis points tighter from launch spread.
The upward momentum in credit markets paused last week as mixed trade headlines, disappointing economic data and heavy new issue supply caused spreads to modestly widen. Investors struggled to digest just under USD 40 billion of new supply last week, well ahead of expectations, and recent jumbo deals such as Pfizer, Merck and Dell all finished the week trading wider than launch. The European Central Bank reacted to a spate of weaker economic data by announcing long-term financing incentives to Banks and suggesting rates would stay lower for longer.
Canadian credit outperformed, but the overall tone was defensive and we finished the week with spreads modestly wider. A late week sell-off in oil prices and a solid slate of new issues kept credit markets on the back foot. Investors received just over C$5 billion of primary issuance balanced across the Financial, Auto and Utility sectors. Bank of Montreal added to recent bank deals with C$2 billion of 5yr bail-in paper. Most of the deals finished the week flat or slightly wider than issue due to general weakness and heavy supply.
Despite mixed macroeconomic news including Brexit, trade negotiations and slowing economic data, global credit and equity markets proved resilient. The U.S. reported solid retail sales and CPI data early in the week, providing confidence in investors without potentially altering the Fed’s dovish course on rate normalization. It was another active week in the primary market, printing $25bn of paper, $13bn of which was bank issuance. Bank of America, Citigroup and JPM all issued deals that launched with a decent concession and are trading 2-3 bp tighter with little selling on the back of the deals. European credit was well bid given a tumultuous week for Theresa May. After May’s revised deal was defeated earlier in the week, the second and third votes of the week ruled out a “no-deal” Brexit on any future date and an A50 extension was passed.
Canadian credit traded either side of unchanged throughout the week as widening of new issue curves balanced out tightening in front end secondary credit. This week saw $1.5bn of issuance from Ford, Canadian Western Bank and CP Railway. Most of the issues were met with solid demand and pushed out spreads in their respective secondary curves while the new issues were a couple tighter.
Global credit outperformed other risk assets given turbulent headlines around the world this week. Fed Chair Powell’s surprisingly dovish tone, fears of a global growth slowdown and a growing fear of a hard Brexit kept investors on their toes. Mr. Powell took all rate hikes off the table in 2019 while guiding its balance sheet tapering on Wednesday, sending Treasury yields significantly lower and triggering fears of a growth slowdown in the US. Weak manufacturing data out of Europe later in the week compounded to the growth fears, triggering a sell-off in equities to close the week. Despite the macro developments, IG credit finished the week either side of unchanged while Financials were 2-3 bp wider due to the fall in interest rates.
Canadian credit finished the week relatively unchanged as REITs and Financials widened out on fears of slowing growth while Utilities and new issues performed well. It was a busy week for the Canadian primary market, printing just under $3bn of credit focused mostly in the long end of the curve. Most of the deals performed well with decent concessions and very small investor fills. Inter Pipeline Inc. was the highlight of the week, issuing their first 60NC10 Hybrid at 6.875% and traded up to 26 bp tighter on the break.
Global credit markets proved resilient in the last week of March, finishing on a positive note despite fears of slowing global growth, yield curve inversion, a lack of Brexit resolution, and ongoing global trade issues. US credit spreads finished the week modestly tighter as the market comes to terms with a lower range for treasury yields and dovish talk from the Federal Reserve. New issue activity was brisk, capped by an $11 billion issue from communications giant Broadcom on Friday.
Stronger-than-expected GDP figures for January helped Canadian credit finish the month on a positive note. The beat sent government bond yields 7 bp higher on Friday while futures prices cut the odds of a 2019 rate cut by 50%. Telus ($TCN) led the way on the new issue front with a $1 billion deal launched on Friday. Attractive pricing and expectations that this would be the only deal from Telus this year drove heavy investor demand, fuelling the largest book of investors for a non-financial deal in Canadian history. The deal performed very well and traded 4 basis points tighter to close out the week.
Despite a strong first quarter there has been a growing sense that the pain trade in credit was tighter spreads, and last week saw a strong move to coincide with government yields moving back to the top of the trading range. A lack of bad news provided sufficient catalyst, though improved Chinese economic data, a long extension to the Brexit deadline and lower than expected new issue supply all contributed to the optimism. Spreads were anywhere from 5-10 bp tighter, led by Financials and Energy. Saudi Arabia’s Aramco (A1/A+) provided most of the excitement in terms of new US Dollar deals, issuing $12bn across 5 tranches. A “fear of missing out” mentality undoubtedly led to an order book in excess of $85bn, but in the end the deal priced too far through Saudi sovereign spreads and has struggled to perform in secondary trading.
Canadian credit tightened given positive macro economic developments around the world. Credit spreads tightened by 5 bp on average, led by Maple issuers and Financials. The biggest underperformers were low beta product like Infrastructure and Utilities.
Global credit spreads were able to finish out a holiday-shortened week with modest tightening in Canada and Europe while the US was unchanged to slightly weaker. In the US, healthcare bonds came under pressure with concerns that Democrats are looking to reform the industry post-2020 elections. CVS, UnitedHealth and Cigna spreads were all 5-10 basis points wider for the week. New issue activity exceeded expectations as the US banks used solid quarterly earnings reports to springboard new deals. Most deals priced with increased concessions due to softer demand, and were able to close marginally tighter in secondary trading.
Canadian credit continues to catch up to US spread tightening from earlier in the month. Spreads finished the week 3-5bp better on the back of strong inflows into corporate bonds and surprisingly robust retail sales. Bank of America ($BAC) was the sole issuer in the Canadian primary market last week, printing $1bn of 6NC5 bonds. The deal was moderately attractive compared to BAC’s USD paper and finished the week trading 2 bp tighter.