Another week of strong primary market activity

Headlines

Another week of strong primary market activity
Modest risk-off mode with widening CDS indices
Focus on Crimea’s referendum on Sunday

Market commentary

This week has been dominated by strong issuance activity in the primary markets and strong investor sentiment as investors hunt for yield in a low-rate environment. The conflict in Ukraine has had limited influence on the positive investor appetite, although we have seen a modest risk-off mode since last week in equity markets and CDS indices. The modest risk-off mode is further influenced by weak US and Chinese growth data. The short-term focus will be on Crimea’s referendum to join Russia this Sunday (16 March), the referendum is expected to be in favour of joining Russia and the big question relates to Russia’s potential reaction and the response from the US and Europe. The US secretary of state, John Kerry, has warned that there could be ‘very serious’ steps if there are no signs of resolution between Russia and Ukraine.

The iTraxx Crossover index has currently increased to 278bp (260bp last week) and the iTraxx Europe investment grade index has widened by 5bp and is currently at 77.5bp, graphically illustrated to the right.

Debt markets are dominated by strong investor demand and as a result we have seen oversubscribed order books and transactions priced with minimal new issue premium this week. The Norwegian government-owned aviation company Avinor (A1/AA-) made its first appearance in the EUR market with a seven-year EUR300m issue at the tightest spread in history for a seven-year corporate transaction. Avinor’s seven-year senior unsecured bonds was priced at mid-swap + 45bp and the bond issue was 5x oversubscribed. We expect strong primary activity to continue, but a change in the macroeconomic scene should affect the extraordinary positive investor sentiment.

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