Global credit markets continued to grind tighter last week amid solid bank earnings, signing of the “Phase One” deal between US and China, and fading geo-political tensions. New corporate bond supply continues to be strong with $34 billion printing in the US market last week; down from the $60bn of week one but still nearly 30% ahead of the 2019 pace on a year-to-date basis. Credit spreads tightened by 3-8 basis points as flows continue to pour into bond funds. On the rates side, the US Treasury announced that it would start issuing 20-year bonds which allowed the Treasury curve to steepen even as rates continue to be generally range-bound.
Canadian credit continues its strong start to the year, tightening by 3-10 bp and generally outperforming other geographic regions. This week saw the domestic primary market kick into life with 2.5 billion of new corporate bond supply across five issuers. In the bank sector, BMO printed CAD 1.5bn of a 5-year bail-in bond, a welcome reprieve in financial issuance as most banks continue to fund most of their needs in foreign currencies. The deal was well oversubscribed and finished the week 5 basis points tighter.
This week will be a slow start with the US market closed for Martin Luther King Day on Monday. Both the Bank of Canada and European Central Bank will make rate policy announcements mid-week, however we anticipate both will leave rates on hold.
The first full week of 2020 proved both busy and constructive for global credit markets. Despite heightened geopolitical tension in the middle east, corporate new issues were fast out of the gate with over $60 billion printed across 40 issuers in what proved to be the second-largest week of US dollar supply on record. The issuance was dominated by European and Asian financial sector borrowers, including names like Standard Chartered, BNP and Westpac. Of note, Japanese bank Nomura brought their inaugural Yankee deal with much fanfare, printing $3 billion across 5 and 10-year tranches. The 10-year tranche tightened by up to 11 basis points in early trading as significant buyers all corners of the world stepped in. Despite the substantial supply, US spreads still managed to finish 3-5bp tighter, as the market easily absorbed the supply. Government bonds in Europe continue to unwind from negative rates with yields at a six-month high, while Treasury yields remain in the middle of the 1.70-1.95% range which has prevailed since early October.
New bond issuance was significantly more muted here in Canada as just two deals came to market. Both priced right in line with secondaries but still managed to trade well as investors scrambled to add credit duration. Overall Canadian credits shrugged off middle-east tensions to finish the week 2-3 basis tighter.