In spite of the much-heralded cold snap over the past week, credit markets have not cooled off. Maybe market sentiment is just frozen in place along with everything else, but 2014 has started on a positive note. Or did it? We find ourselves going back and forth between the good and the bad.
On the good side, the new issue calendar was active, which was expected after a holiday hiatus of several weeks. $50 billion priced this week, about $20 billion of which came from sovereign issuers, and the rest from corporate issuers. Bank and finance dominated, which is typical to start the year, including deals from GE, Toyota Motor Credit, and a number of Yankee banks. They were joined by industrial issuers Mondelez, American Tower, Union Pacific, and French oil producer Total. Demand was solid, with deals generally pricing inside of guidance, and performing well once they were free to trade. Spreads have also remained firm – intermediate bonds are a few basis points tighter, and longer duration corporate spreads unchanged so far this year. Not a bad start to the year for Credit.
On the other hand, we are starting to see some weakness in a few areas. Long duration industrials are a little wider, following an unusually strong performance in December. CDX spreads are a few basis points wider (CDX are indices based on Credit Default swaps of a set group of issuers), also following a generally strong December. Investors began selling bank/ finance and telecom paper after the first couple of trading days, and spreads there also moved a little wider. There haven’t been any big cracks yet, so maybe we can chalk up some of the movement to profit-taking.
There are a few worries still in the market, like the never-ending budget battles in Congress. But we have sailed through taper from the Fed, new rules from Dodd Frank, and we are no longer concerned about the collapse of any European Banks. It looks like we’re set up for a solid year with low volatility and good performance from credit.
My mind is going to keep me up at night. Crisis in credit just wasn’t that long ago.
Husker Du?