Happy New Year! Global credit markets picked up in 2021 where they left off: with tighter spreads and positive momentum. This despite a number of headlines that looked to potentially de-rail the positive sentiment; UK leading a number of countries into lockdown amid spiking COVID cases, Democrats gaining control of the Senate to foster fears of “business unfriendly” policies, US 10 year yields rising 20bp to finish above 1% for the first time since March, Wednesday’s storming of Capitol Hill by disgruntled Trump supporters, and all topped by Friday’s disappointing US unemployment numbers which showed the jobs recovery appears to have stalled. The persistent optimism in market pricing hinges on two assumptions, that vaccine rollout will allow economic activity to recover quickly and that central banks are prepared to do “whatever it takes” to ensure risk assets don’t collapse before then. The US priced over $50bn of new supply and most deals finished the week 5-10bp tighter than issue spread.
Canadian credit was also decidedly risk on while focusing on positive developments from the OPEC+ meeting and the curtailment of oil production for the first quarter of 2021. Energy credits rallied by over 10 bp in sympathy with the rise in oil prices. The lack of issuance also provided a technical tailwind for credit, allowing the rest of the general market to tighten by 5-8 bp.