Marketing Communication
Euro Corporate Weekly A false start
Group Economics Macro & Financial Markets Research Hyung-Ja de Zeeuw & Aline Schuiling +31 20 628 3551 Hyung-ja.de.zeeuw@nl.abnamro.com
DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.
22 May 2015
Credit spreads keep slowly grinder tighter. This is the movement that we envisioned when the QE announcement was made in January Real money investors seem to react on the Bund move by shortening duration in credit Supply digestible but oversupply looms in fragile market Euro surveys for May decline, but still good reasons to expect a strengthening economic recovery
A false start
In the second half of February and beginning of March, a wall
Credit spreads keep slowly grinder tighter. From the peak that
of new deals hit the market. There were days in which several
was reached in the end of April to today, spreads have
multi-tranche deals were issued on the same day. Five out of
tightened 10bps. This is the tightening that we envisioned
the ten heaviest issuance days were in that timeframe. One of
when the QE announcement was made in January. A slow
the heaviest days was on 26 February. GDF Suez printed a
grind tighter towards the end of the year interrupted by pockets
two year fixed deal with a zero coupon on 4 March. Two days
of volatility, ending the year 30 to 35 basis points tighter than
later spreads started to widen aggressively on light flows.
were we started it. Not the aggressive swing wider that brought spreads back to square one.
Top 10 heaviest issuance days in 2015 IG benchmark deals in EUR bn
The aggressive widening at the end of February was for a great deal driven by oversupply in the primary market and ultra-low yields. We think that the fact that the widening coincided with the actual start of the QE programme was not a
6 5
4 3
major driver.
2
A false start
1
asw spread
0
100
90
Source: ABN AMRO Group Economics, Bondradar
80
Switching to the belly in the secondary market 70
The 10 year Bund yield reached its peak at 0.76% on 14 May before reversing. The remarks made by Executive Board
60
50 21/05/14
member Coeure, that the ECB would frontload its purchases of 21/08/14
QE announcement
21/11/14 QE start
21/02/15 Non-fins sr.
21/05/15 Non-fins
Source: ABN AMRO Group Economics, Markit
eurozone bonds, pushed the Bund yield further down. Real money investors seem to react on the Bund move by shortening duration in credit. We’ve seen real money switching out of the longer end of the curve and into paper in the belly of the curve. However, flows are really thin and they are too insignificant to steepen curves.
Insights.abnamro.nl/en
Bloomberg: ABNM