Danske Research Team
Danske Bank A/S
Headlines
Another week of strong primary market activity.
Strong credit sentiment, despite increased geopolitical risk.
Market commentary
Despite the increased geopolitical risk (and the risk of repeating ourselves), the credit markets continue to be dominated by strong bond issuance activity for both the high-yield and investment-grade segment. The positive market sentiment has also dominated the secondary market with no panic sellers in sight.
The iTraxx Crossover index tightened from 309bp to 298bp and the iTraxx Europe investment-grade index tightened marginally from 80bp to 79bp during this week. The iTraxx Europe sub-index iTraxx Financials tightened from 100.4bp to 97bp. The iTraxx indices rolled on 20 March with major changes made to the Crossover index to the 21st series, with 60 instead of 50 companies and a reduced average rating to B from B+. The iTraxx Crossover index based on the 20th series with a higher average rating also tightened this week from 248bp to 239bp.
Although it is not evident from credit and equity markets, the geopolitical tension is substantial at the moment. The current focus is on whether Russia’s activities will be limited to the Crimea peninsula and whether additional sanctions will hurt trade and growth. The EU has agreed with the US to reduce its energy import dependence on Russia and NATO’s military co-operation with Ukraine has intensified as the Russian troops increase along the Ukrainian border. Ukraine reached a preliminary deal with the IMF to unlock USD27bn in international aid over a period of two years. According to President Obama this is a ‘concrete signal of how the world is united with Ukraine’ – and the president pointed out that (some) lessons have been learned from two world wars.
Bond markets continue to be characterised by strong investor demand searching for yield, with oversubscribed order books with margins at the low end of pre-sounding processes.
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