Summary
- The feelgood factor is intact in the credit market...
- ...fuelling massive activity in the primary market.
Headlines from the credit market this week
The week started out on a very positive note following Greece’s successful debt issuance last week coupled with this week’s statements from the IMF that Greece probably wouldn’t need bailouts. At the end of the week market speculation about new debt issuance from Greece, coupled with massive strikes, dampened the relief rally. Sovereign CDS spreads continue their healthy performance, while financials have been jilted (see graph below). Good macro numbers out of the US and eurozone, coupled with the Greece story caused both iTraxx Europe and Crossover to tighten substantially during the week, now trading at 75 basis points and 414bp respectively. On the back of heavy primary issuance this week, secondary cash spreads have receded, as investors anticipate further primary supply.
The current positive sentiment in the market has been exploited by a large number of financial and non-financial issuers this week. We have seen issues from a large number of sectors, across various maturities and ratings, including high yield. It is nevertheless interesting that the performance in the secondary market has been very muted, signalling to us, that we are seeing a limited supply of new money. Also, the larger part of the new issues is showing mixed performance in the aftermarket, signalling a somewhat saturated market, where the absorbance of new debt is driven by fast money. This causes us to worry that the current bull market could be short lived. In the short term, cash spreads are therefore likely to struggle, in our view.
