Marketing Communication
Group Economics
Euro Corporate Weekly
Macro & Financial Markets Research Hyung-Ja de Zeeuw & Aline Schuiling +31 20 628 3551 Hyung-ja.de.zeeuw@nl.abnamro.com
Spreads tighten in volatile week
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.
01 May 2015
Correction in Bunds caused by an accumulation of minor reasons coinciding in a short time frame Credit Yields jump but credit spreads have tightened on light supply from the primary market This shows how vulnerable the credit market has become to supply volume Half way through the earnings season the beat:miss ratio stands at 2:1 Eurozone bank lending to Non-Financials continues to improve
Correction in Bunds…
announcement of ECB QE programme. Yields for Non-
There didn’t seem to be one clear trigger for the fierce
Financial senior paper reached a low in March this year, when
correction in Bunds this week. The most plausible explanation
spreads tightened aggressively in conjunction with the fall in
is an accumulation of several minor reasons coinciding in a
Bund yields.
short timeframe. The recovery of the longer-term inflation expectation in the eurozone and the better money supply
Yield for Non-financials are back at February levels
numbers coincided with Bund supply in illiquid markets while
In %
the street was already long positioned. Add to this a handful of
1.5
fears of an early QExit and we have a recipe for a jump in 1.3
yields. We expect to see more of such pockets of volatility in the coming months. As economic growth strengthens and inflation
1.1
0.9
expectations increase, discussions about a possible early QExit will become stronger and more frequent. Meanwhile, supply will dry up after May and the expected scarcity in Bunds will increase. These two forces, QExit fears on the one hand and scarcity in Bunds on the other, will be sources of increased volatility. However, ECB President Draghi will likely continue to dismiss QExit speculation in coming months as underlying inflationary pressures are still weak, while the central bank will want to be really sure that the outlook has sustainably improved. We therefore continue to expect that ECB purchases will lead to acute scarcity of core government bonds. And that Bund yields will fall on the 3m horizon. For our Bund forecast please read our Daily Insight “Is the Bund
0.7
Jan
Feb
Mar
Apr
May
Non-Financials sr Source: ABN AMRO Group Economics, Bloomberg
…but spreads have tightened The jump in yields almost conceal the fact that credit spreads have actually tightened this week, although on thin flows. In fact, in a week in which most equity indices experienced losses, it was a very good week for credit spreads. Spreads for Non-Financials tightened 6bps and hybrids 23bps. The tightening was supported by low supply from the primary market. Corporates prefer to stay side-lined in times of high
bubble bursting?”.
volatility. On top of that, many corporates are currently in their
…cause credit yields to jump
This shows how vulnerable the current credit market has
black-out period and can’t issue bonds.
The aggressive move in Bunds pushed credit yields up to levels last seen in the end of January just after the
Insights.abnamro.nl/en
become to supply. We don’t expect the pace of new issuance to return to the levels we’ve seen during the end of February
Bloomberg: ABNM
2
Euro Corporate Weekly –
Leverage will rise in the coming years - 01 May 2015
and the beginning of March, but there are still many issuers
are Basic Materials where most earnings are worse than
waiting in the side-lines wanting to take advantage of the low
expected. Falling raw material prices and weak demand from
yield environment. Heavy supply concentrated in a short time
China add to the already difficult market conditions in the
frame will certainly push spreads wider.
sector.
Better than expected earnings
Tightening credit spreads in volatile week
Non-Financials iBoxx constituents
asw margin
> Technology > Utilities > Telecommunications > Consumer Services > Health Care > Consumer Goods > Industrials > Basic Materials > Oil & Gas All Securities
100 90 80 70 60 50 Apr
Jun Aug QE announcement Non-fins sr.
Oct
Dec Feb Corporates Non-fins
0%
Apr
Positive
20%
40%
In-line
60%
80% 100%
Negative
Source: ABN AMRO Group Economics, Bloomberg Source: ABN AMRO Group Economics, Markit
Eurozone bank lending stays on upward trend
Table 1 - iBoxx EUR IG Sector Performance
The ECB’s report about monetary developments in the
Asset swap margin in bps
eurozone showed that bank lending to non-financial
30/04/2015
chg. week
chg. month
chg. YTD
Corporates
85
-7
-1
-3
companies stayed on an upward trend in March. Although the
Non-Financials
79
-6
0
0
monthly flow (adjusted for sales and securitisation) was slightly
Non-Financials Sr.
69
-5
-1
-1
negative (EUR -0.9bn), this followed on a EUR 12.4bn surge in
Non-Fins Sub
237
-23
-17
-38
Non-Fins AA
45
-4
-1
2
Non-Fins A
64
-6
-3
6
102
-10
1
-10
growth rate stabilised at -0.3%. (see graph), but should move
Non-Fins BBB
February. The less volatile three month moving average flow remained well in positive territory, at EUR 3.5bn. The annual
83
-11
11
18
into positive territory in the coming months. This view is
104
-9
0
9
supported by the ECB’s Bank Lending Survey for Q1, which
Chemicals
60
-4
-7
-5
showed that banks continue to ease credit standards on loans
Construction
74
8
10
2
to non-financial companies, while they report rising demand for
Oil & Gas
79
-3
0
-32
Food & Beverages
61
-7
5
10
Health Care
64
-3
4
7
Industrial Gds & Serv
63
-1
2
3
Media
75
-5
8
5
Personal & HH Goods
62
-7
-2
10
Retail
74
-4
-1
-26
Technology
43
-2
-3
4
Automotive Basic Resources
loans.
Eurozone bank loans to non-financial companies balance
70
16
50
11
30
Telecom
95
-14
-4
1
Travel & Leisure
87
-2
19
6
10
Utilities
90
-5
2
3
-10
Source: ABN AMRO Group Economics, Markit
%
6 1 -4
-30 -50
-9
04
Earnings still better than expected Just over half of the iBoxx corporates have reported results. The earnings beat:miss ratio stands at 2:1. Positive sectors are
05
06
07
08
09
10
11
12
13
14
15
Credit standards (lhs, positive is tighter) Credit demand (lhs, positive is higher) Annual growth in loans to non-fin. Corporations (rhs)
Oil & Gas and Health Care. Although the Oil & Gas sector is confronted with lower oil prices, their refinery business partly mitigates the negative effect. On the other end of the spectrum
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
3
Euro Corporate Weekly –
Leverage will rise in the coming years - 01 May 2015
Table 2 – Benchmark Non-financial new issues this week Date
Issuer
29/04/15 29/04/15 29/04/15 29/04/15
BRISTOL MYERS BRISTOL MYERS DONG PEARSON
Size (m ln) Coupon 575 575 600 500
1.00 1.75 3.00 1.375
Maturity
tenor
IPT
Spd at launch vs MS
15/05/25 15/05/35 Perpetual 6/05/25
10.0 20.1 1000.5NC5.5 10.0
65a 100a 3.25%a 90/95a
53 90 282 82
IPT
Spd at launch vs MS
75a 85a 65a 55/60 40/45 75/80 135a 90/95 55a 3.5-3.625% 2.875-3% 3.625-3.75% 3.125-3.25% 165a 75/80 3.625% 55a 90a 125/130 100a
269 40 65 75 50 50 35 65 122 85 45 300 264 296 264 155 68 308 50 85 125 95
01-May YAS_ISPREA 48 89 285 78
Perform ance Moody S&P -5 -1 3 -4
A2 A2 Baa3 Baa1
Book Counvs Fitch try Deal (x) iBoxx class
A+ A+ BB+ BBBBBB+
UK UK DK UK
0.0 0.0 2.3 3.5
Health Care Health Care Utility Media
Source ABN AMRO Group Economics, Bloomberg/Bondradar,
Table 3 – Performance recent new benchmark deals Date
Issuer
Size (m ln) Coupon
01/04/15 07/04/15 08/04/15 08/04/15 08/04/15 09/04/15 09/04/15 10/04/15 13/04/15 13/04/15 13/04/15 14/04/15 14/04/15 16/04/15 16/04/15 16/04/15 20/04/15 21/04/15 22/04/15 22/04/15 23/04/15 23/04/15
CENTRICA VOLKSWAGEN KLEPIERRE UNIBAIL UNIBAIL BMW BMW RED ELECTRICA FCA CAPITAL ANHEUSER-BUSCH ANHEUSER-BUSCH RWE RWE BERTELSMANN BERTELSMANN EDP GENERAL MILLS GAS NATURAL BHP BILLITON BHP BILLITON JAB HOLDINGS SMITHS GROUP
750 750 750 500 500 500 1000 500 700 1250 1000 550 700 600 650 750 500 500 650 750 600 600
3.00 0.75 1.00 1.375 1.00 1.00 0.625 1.125 1.375 1.50 0.80 3.50 2.75 3.50 3.00 2.00 1.00 3.375 0.75 1.50 1.625 1.25
Maturity
tenor
10/04/76 14/10/21 17/04/23 15/04/30 14/04/25 20/04/27 20/04/22 24/04/25 17/04/20 18/04/30 20/04/23 21/04/75 21/04/75 23/04/75 23/04/75 21/04/25 27/04/23 Perpetual 28/10/22 29/04/30 30/04/25 28/04/23
61.0 6.5 8.0 15.0 10.0 12.0 7.0 10.0 5.0 15.0 8.0 60.0 60.0 60.0 60.0 10.0 8.0 PNC9 7.5 15.0 10.0 8.0
Source ABN AMRO Group Economics, Bloomberg/Bondradar,
01-May YAS_ISPREA 294 38 62 78 56 57 39 71 109 82 44 295 279 274 247 139 60 305 52 80 113 92
Perform ance Moody S&P 25 -2 -3 3 6 7 4 6 -13 -3 -1 -5 15 -22 -17 -16 -8 -3 2 -5 -12 -3
Baa3 A2
A2 A2 Baa3 A2 A2 Baa3 Baa3 Baa3 Baa3 Baa3 A3 Ba1 A1 A1 Baa1 Baa2
BBB A AA A A+ A+ BBB+ BB+ A A BBBBBBBBBBBBBB+ BBB+ BB+ A+ A+ BBB+ BBB+
Book Counvs Fitch try Deal (x) iBoxx class
A+ A+
ABBB-
BBBBBB+ BBB-
UK DE FR FR FR DE DE SP IE BE BE DE DE DE DE PT US SP UK UK LU UK
6.0
2.2
1.7 2.3
Utility Automotive Real Estate Real Estate Real Estate Automotive Automotive Utility Automotive Food & Beverage Food & Beverage Utility Utility Media Media Utility Food & Beverage Utility Basic Materials Basic Materials Consumer Food & Beverage
4
Euro Corporate Weekly –
Leverage will rise in the coming years - 01 May 2015
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