Marketing Communication
Euro Corporate Watch Grexit ≠ Crexit
Group Economics Macro & Financial Markets Research Hyung-Ja de Zeeuw +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.
08 July 2015
Grexit seems more likely now than ever, however, market reaction almost reflects indifference Corporate fundamentals are healthier than in 2010 and credit spreads will be supported by the ECB ‘Greece’ has led to a minimum of supply but we think markets could reopen very soon and stay open during the holiday season Higher supply volumes and new issuance will be limiting spread performance in the near term
Grexit now more likely than ever
the OMT if QE doesn’t have the desired effect. The OMT can
After Greece’s convincing ‘No’-vote on Sunday and Tuesday’s
focus on ‘unlimited’ purchases of peripheral government bonds
Euro Summit of euro leaders, it seems more likely than not that
which makes it more suitable.
Greece will leave the euro at this point. The prospects of a
Second, other eurozone member states in the periphery aren’t
deal with creditors have dimmed considerably. Despite the
in a similar situation to Greece and aren’t ready to follow in its
Greek government’s claims that a ‘no’ vote would strengthen
footsteps. Contagion effects therefore seem to be limited.
their negotiation position at the table, other eurozone member
Third, exposures of the eurozone banking system to Greece
states did not take a softer stance Tuesday. With the previous
are modest and relatively transparent. The market knows
programme already expired, Greece now needs to except a
where the exposures are.
broader, tougher programme by the Sunday Euro Summit to keep its place in the eurozone.
Corporate fundamentals are healthier than in 2010 Since Mr Tsipras announced the referendum, the iBoxx non-
Market reaction reflects indifference to Grexit
financials has widened by 8bps (Tuesday eod). Intraday we’ve
The financial market reaction has been muted to the
seen wider levels but still, this isn’t anything near a panic
developments. There are no signs of a ‘Lehmann’ moment.
reaction. On the corporate level fundamentals are a lot
Monday’s trading session saw spreads of core corporates 3
healthier than in 2012. Balance sheets have been
bps wider in the long end, while for the periphery they were up
deleveraged, extensive cost cutting programmes have made
5 to 8 bps although flows were almost non-existent. Tuesday
operations lean and mean and revenues are recovering.
and Wednesday morning saw a further widening of up to 5bps
Indeed, the outlook for corporates is much brighter today then
but also on virtually no flow and substantial flows are
in 2010 with ultra-low funding levels supporting growth.
necessary to confirm the current levels. But it remains a very muted reaction to such important developments. There are
Corporate credit spreads supported by QE
several reasons for this.
The QE programme in the US has worked out positive for credit spreads, history has shown. Investors are pushed out of
First of all, the markets are counting on supportive measures
government bonds due to the low yields and move into credit.
from the ECB. If there would be signs of severe stress, the
Logically, this should also be the case during the ECB QE
ECB will be ready to intervene with force. Contrary to the
programme.
situation in 2010, the required instruments are now at the ECB’s disposal. In the near term, the ECB could decide to step
Moreover, last week’s inclusion of three Italian corporates to
up QE. Although the instrument is skewed toward core
the list of eligible assets signals the ECB programme can be
government bonds. Alternatively, the ECB could also activate
deployed directly in the corporate bond market. Although
Insights.abnamro.nl/en
Bloomberg: ABNM
2
Euro Corporate Watch –
Grexit ≠ Crexit
officially the corporates were added due to a lack of Italian
Where from here?
agencies, it opened the door for the inclusion of more
The countdown for Grexit has started. History has taught that
(periphery) corporates. Spreads of the three included
the tables can turn very quickly in this Greek saga. However, it
corporates (SNAM, Enel and Terna) tightened 20 to 30bps.
is clear that the uncertainty surrounding a Grexit is a negative factor for spreads. If Greece submits new proposals to the
‘No’ vote, no supply?
eurogroup meeting this week that are good enough to re-start
Although the secondary market may almost seem indifferent to
the negotiation process for a third ESM package, it would still
a Grexit, the uncertainty did have repercussions for the primary
take time to reach an agreement and uncertainty will persist. In
market where the flow of corporate new issues has virtually
that ‘new normal’ spreads could trickle wider every day in a
come to a halt. Nobody seems willing to issue paper during
very moderate pace. In those market conditions new issues
these uncertain circumstances. As a result, the pipeline with
can be placed during windows of opportunity, albeit in a
new deals is growing to gigantic proportions.
considerate manner. New issue premiums will need to be paid in order to comfortably place the deals as we’ve seen earlier
However, also in the primary market, we eventually expect
this month. In that case we expect spreads to slowly widen in
business to turn back to normal even with a Grexit. As the
the near term to asw+100 bps area for Non-financials.
market reaction has shown, investors are starting to get immune to the Grexit saga. With this ‘new normal’ and the fact
Where from here?
that there are still many issuers waiting in the side-lines, we
asw spread in bps
expect a considerable flow of transactions as soon as the first
100
issuer has tested the waters with a successful outcome. We 90
expect this moment to be sooner rather than later, but of course taking into account any blackout periods in relation to
80
the Q2 reporting season.
70
We also think that many issuers still want to take advantage of the ultra-low yields and use the open window as long as they can. This means that it could be a shortened holiday season with an early start back to business, or no holiday season at all. Historic data has shown that August proves to be a
60
50 01/14
04/14
07/14
QE announcement
10/14 QE start
01/15
04/15
Non-fins sr.
Non-fins
Source: ABN AMRO Group Economics, Markit
favourite month to issue. If a Grexit would materialise, we expect a rerun of the last two
August favourite month for corporate issuance
Mondays. A muted reaction in the markets with spreads
EUR bn
widening 5 to 10bps. However, this could very well be followed
30
by a relief rally and high levels of supply. Issuance could
25
continue throughout the holiday season. This will have a
20
widening effect on spreads. However, risk appetite will also
15
return which will contain the widening. Net/net this could result
10
in a sideways movement in the near term.
5 0
2009
2010 June
2011 July
2012 August
2013 Sept
Source: ABN AMRO Group Economics, Bloomberg Bond Radar
2014
3
Euro Corporate Watch –
Grexit ≠ Crexit
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