Marketing Communication
Euro Corporate Weekly A false start
Group Economics Macro & Financial Markets Research Hyung-Ja de Zeeuw & Aline Schuiling +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.
22 May 2015
Credit spreads keep slowly grinder tighter. This is the movement that we envisioned when the QE announcement was made in January Real money investors seem to react on the Bund move by shortening duration in credit Supply digestible but oversupply looms in fragile market Euro surveys for May decline, but still good reasons to expect a strengthening economic recovery
A false start
In the second half of February and beginning of March, a wall
Credit spreads keep slowly grinder tighter. From the peak that
of new deals hit the market. There were days in which several
was reached in the end of April to today, spreads have
multi-tranche deals were issued on the same day. Five out of
tightened 10bps. This is the tightening that we envisioned
the ten heaviest issuance days were in that timeframe. One of
when the QE announcement was made in January. A slow
the heaviest days was on 26 February. GDF Suez printed a
grind tighter towards the end of the year interrupted by pockets
two year fixed deal with a zero coupon on 4 March. Two days
of volatility, ending the year 30 to 35 basis points tighter than
later spreads started to widen aggressively on light flows.
were we started it. Not the aggressive swing wider that brought spreads back to square one.
Top 10 heaviest issuance days in 2015 IG benchmark deals in EUR bn
The aggressive widening at the end of February was for a great deal driven by oversupply in the primary market and ultra-low yields. We think that the fact that the widening coincided with the actual start of the QE programme was not a
6 5
4 3
major driver.
2
A false start
1
asw spread
0
100
90
Source: ABN AMRO Group Economics, Bondradar
80
Switching to the belly in the secondary market 70
The 10 year Bund yield reached its peak at 0.76% on 14 May before reversing. The remarks made by Executive Board
60
50 21/05/14
member Coeure, that the ECB would frontload its purchases of 21/08/14
QE announcement
21/11/14 QE start
21/02/15 Non-fins sr.
21/05/15 Non-fins
Source: ABN AMRO Group Economics, Markit
eurozone bonds, pushed the Bund yield further down. Real money investors seem to react on the Bund move by shortening duration in credit. We’ve seen real money switching out of the longer end of the curve and into paper in the belly of the curve. However, flows are really thin and they are too insignificant to steepen curves.
Insights.abnamro.nl/en
Bloomberg: ABNM
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Euro Corporate Weekly –
A false start - 22 May 2015
Less appetite for longer tenors in the primary market
in oil prices, the decline in the euro and easing financial
In the primary market the same trend is reflected. During the
conditions point to a strengthening recovery going forward.
wall of supply in February and March, tenors became ever
Indeed, the components of the PMI report showed that the new
longer. Seven issuers issued a 20-year deal during those days.
export orders index of the manufacturing PMI jumped higher
British American Tobacco even came with a 30-year deal.
by 1.1 points in May, to 53.0, which adds to the evidence that the weak euro is supporting the eurozone economy. Moreover,
However, the last 20-year deal was issued on 29 April by
the employment component of the composite PMI increased in
Bristol Meyers Squibb. No 20-year deals were issued in May.
May, signalling an ongoing gradual labour market recovery.
McDonald’s tried on Monday but had to pull the transaction due to a lack of interest.
Eurozone composite PMI and GDP growth index
The cancellation of the McDonald’s 20-year bond was partly a credit story but the tenor certainly didn’t help. Investors seem
60
increasingly picky about the bonds they buy. The old game of
55
announcing a deal with an attractive IPT, revising guidance
50
tighter and printing final terms well inside the revised guidance
45
can’t be played in this market. Instead, some transactions can
40
still print a couple of basis points inside the IPT while other
35
transactions print at the tight end of the IPT.
% q-o-q
1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0
30 04
05 06
Supply digestible but oversupply looms in fragile market
GDP (rhs)
So clearly, the current market conditions are fragile. Investors are becoming pickier about what they buy, some are switching
07 08 09
10 11
12 13
14 15
Composite PMI (lhs)
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
out of the longer end and seem to be waiting for a clear direction. In the meantime, issuers are still lining up to issue in this low yield environment now they still can. Once the holiday
Table 1 - iBoxx EUR IG Sector Performance Asset swap margin in bps
season kicks in, markets close for new deals and when they
21/05/2015
chg. week
chg. month
chg. YTD
open in September, it could all look very different. The result is
Corporates
80
-3
-14
-8
that on stable days, issuers tumbling over each other to get
Non-Financials
74
-4
-12
-5
Non-Financials Sr.
63
-4
-11
-7
Non-Fins Sub
236
2
-27
-39
Non-Fins AA
39
-4
-10
-4
Non-Fins A
53
-4
-18
-5
101
-3
-13
-12 -6
th
their deal placed. May 18 was such a day when Adecco and United Technologies came with a transaction on top of McDonald’s 4-tranche transaction that finally became a triple tranche transaction.
Non-Fins BBB Non-Fins 3-5 year
52
-4
-1
We’re convinced that spreads will slowly tighten further if
Non-Fins 5-7 year
68
-3
-4
-2
supply stays within digestible volumes. Credit remained very
Non-Fins 10+
90
-5
-4
-10
resilient in the recent Bund sell-off and the eurozone recovery
Automotive
73
-3
-33
8
Basic Resources
91
-3
-4
-5
Chemicals
61
-1
-4
-4
Construction
68
-3
4
-5
Eurozone recovery to strengthen
Oil & Gas
74
-4
-12
-37
A number of eurozone indicators weakened in May. The
Food & Beverages
55
-4
-15
3
eurozone composite PMI fell to 53.4, down from 53.9 in April
Health Care
65
-3
-1
8
and consumer sentiment fell to -5.5 from -4.6. In Germany, the
Industrial Gds & Serv
61
-6
-1
1
ZEW sentiment indicator declined to 41.9 in May, down from
Media
86
-3
8
16
53.3 in April, while the Ifo business climate eased to 108.5
Personal & HH Goods
59
-4
-11
6
Retail
70
-2
-6
-30
Technology
40
-2
-7
1
Telecom
88
-4
-23
-7
declines in the surveys do not signal a major loss of
Travel & Leisure
82
-4
-10
0
momentum. The composite PMI for instance is consistent with
Utilities
86
-4
-12
-1
annualised growth of more than 1.5%. In addition, the past fall
Source: ABN AMRO Group Economics, Markit
will strengthen further.
from 108.6. Despite these declines, we think there are still good reasons to expect a strengthening recovery. Overall, the
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Euro Corporate Weekly –
A false start - 22 May 2015
Table 2 – Benchmark Non-financial new issues this week
Date 18/05/15 18/05/15 18/05/15 18/05/15 19/05/15 19/05/15
Issuer UNITED TECHNOLOGIES ADECCO MCDONALD'S MCDONALD'S ILLINOIS TOOL WORKS ILLINOIS TOOL WORKS
Size (m ln) Coupon 750 1.25 500 1.50 600 1.875 800 1.125 500 2.125 500 1.25
Spd at launch vs MS 57 80 80 55 100 62
22-May 51 80 83 51 111 65
PerforCounm ance Moody S&P Fitch try iBoxx class -6 A2 A A US Industrials 0 Baa2 BBB+ CH Industrials 3 A3 ABBB+ US Travel & Leisure -4 A3 ABBB+ US Travel & Leisure 11 A2 A+ US Industrials 3 A2 A+ US Industrials
Spd at launch vs tenor MS 60.9 269 6.4 40 7.9 65 14.9 75 9.9 50 11.9 50 6.9 35 9.9 65 4.9 122 14.9 85 7.9 45 60.0 300 60.0 264 60.0 296 60.0 264 9.9 155 7.9 68 PNC9 308 7.4 50 14.9 85 9.9 125 7.9 95 10.0 53 20.0 90 1000.5NC5.5 282 10.0 82 10.0 72 6.0 102 5.0 73 7.0 45 8.0 37 15.0 67
22-May 275 24 54 70 53 38 26 66 108 73 36 308 293 257 230 134 52 304 41 66 113 89 35 80 251 73 65 96 66 34 36 61
PerforCounm ance Moody S&P Fitch try iBoxx class 6 Baa3 BBB UK Utility -16 A2 A DE Automotive -11 AFR Real Estate -5 A A+ FR Real Estate 3 A A+ FR Real Estate -12 A2 A+ DE Automotive -9 A2 A+ DE Automotive 1 BBB+ ASP Utility -14 Baa3 BB+ BBBIE Automotive -12 A2 A BE Food & Beverage -9 A2 A BE Food & Beverage 8 Baa3 BBBDE Utility 29 Baa3 BBBDE Utility -39 Baa3 BBBDE Media -34 Baa3 BBBDE Media -21 Baa3 BB+ BBBPT Utility -16 A3 BBB+ BBB+ US Food & Beverage -4 Ba1 BB+ BBBSP Utility -9 A1 A+ UK Basic Materials -19 A1 A+ UK Basic Materials -12 Baa1 BBB+ LU Consumer -6 Baa2 BBB+ UK Food & Beverage -18 A2 A+ UK Health Care -10 A2 A+ UK Health Care -31 Baa3 BB+ BBBDK Utility -9 Baa1 BBB+ UK Media -7 Baa1 BBB+ BBB+ UK Media -6 Baa1 BBB+ US Real Estate -7 Baa3 BBB BBBUS Automotive -11 A DE Industrials -1 Aa3 AAUS Industrials -6 Aa3 AAUS Industrials
Maturity 22/05/23 22/11/22 25/05/27 26/05/22 22/05/30 22/05/23
tenor 8.0 7.5 12.0 7.0 15.0 8.0
Source ABN AMRO Group Economics, Bloomberg/Bondradar,
Table 3 – Performance recent new benchmark deals
Date 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 29/04/15 29/04/15 29/04/15 29/04/15 05/05/15 06/05/15 06/05/15 11/05/15 13/05/15 13/05/15
Issuer 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 BRISTOL MYERS BRISTOL MYERS DONG PEARSON REED ELSEVIER PROLOGIS FORD WUERTH FIN 3M 3M
Size (m ln) Coupon 750 3.00 750 0.75 750 1.00 500 1.375 500 1.00 500 1.00 1000 0.625 500 1.125 700 1.375 1250 1.50 1000 0.80 550 3.50 700 2.75 600 3.50 650 3.00 750 2.00 500 1.00 500 3.375 650 0.75 750 1.50 600 1.625 600 1.25 575 1.00 575 1.75 600 3.00 500 1.375 600 1.30 700 1.375 500 1.114 500 1.00 600 0.95 500 1.75
Maturity 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 15/05/25 15/05/35 Perpetual 6/05/25 12/05/25 13/05/21 13/05/20 19/05/22 15/05/23 15/05/30
Source ABN AMRO Group Economics, Bloomberg/Bondradar,
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Euro Corporate Weekly –
A false start - 22 May 2015
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