European Credit and Rates

Equities firmed up across the US and Europe, as a continued rise in the CPI (which came in at 1.6% YoY) yesterday suggests that US inflation is no longer a concern for the December FOMC meeting. Hence, the expectations of an imminent rates hike, which kicked in post Trump elections, keep driving rates higher. Synthetics painted a mixed picture as the Main, Senior and Sub Financials all closed 0.5-4bp in the red, while Crossover was 2bp tighter. Cash spreads kept widening by 2-4bp across the board. In the secondary market, the widening trend continued throughout the day. With no improvement in market sentiment post-elections, and with the struggle to digest the ample supply of the last days, mid and long maturities in both corporate and FIG space are under selling pressure. Peripherals especially took a hit. Utilities names lead the underperformance with Enel (ENELIM) widening by up to 12bp, taking the total widening to 10-42bp across the curve over the last week. In industrials, Autostrade per l’Italia (ATLIM) saw a 8-12bp widening in the mid to long part of the curve yesterday. In a sellers-dominated market, some limited buying interest was spotted yesterday in very short maturities of up to one year. While FIG names didn’t witness the same amplitude of spread widening, Italian and French banks are being bid wider, with Credit Agricole (ACAFP) bonds widening by on average 5bp yesterday and Intesa Sanpaolo (ISPIM) by about 4bp. Nordic and Australian names have been the most resilient to the downward market spiral. After a rather busy start of the week, primary markets remained relatively quiet yesterday. Vivendi (VIVFP) flew solo with a 11/2023 bond, pricing € 600m at MS+80bp, only 5bp inside the IPTs. The new offering pushed the longer end of the outstanding curve up to 15bp wider. Choppy market conditions discouraged Louis Dreyfus Company (LOURDRE) from proceeding with a 5yr € offering following the roadshow. BNP Paribas (BNP) and Gas Networks (BOGAEI) announced potential deals.