- Primary market activity slowed significantly with year-end approaching.
- Fed tapering decision turned out to be dovish!
- EBA transparency exercise confirms that Nordic banks are strongly capitalised.
- 2014: we expect positive returns - albeit at lower levels than in 2013
Market commentary:
During the past week, new issue activity slowed significantly as year-end is rapidly approaching with investors having become less active at the buying end of the market, increasingly focusing on performance preservation. In the secondary market, credit indices tightened despite the long-awaited Fed decision to start tapering by lowering bond purchases by USD10bn to USD75bn per month. The Fed gave no preset course for future tapering but at the press conference Ben Bernanke said that he expected a similar pace of tapering at future meetings and that QE would end by the end of next year. He also highlighted that the Fed could pause tapering if data slowed and, on the other hand, increase the pace should growth pick up more strongly. Clearly, the Fed is trying to keep as much flexibility as possible. At the same time, the language on inflation was softened and the Fed kept a cautious language on the economy as well which the market interpreted as an overall dovish tone.
For Nordic banks, the EBA transparency exercise was another sign of strength. The exercise confirmed that the Nordic banks are among the best capitalised banks in Europe – and we note that the four Danish banks included have the highest average capitalisation.
During the week, a couple of high-yield non-rated names took advantage of the positive general market sentiment with new issuance both in Nordic local currencies and in EUR. Looking back at the year that has passed, issuance has been substantial. In the corporate space, EUR investment grade market looks poised to have delivered volumes at par with last year, while rated high-yield volumes are already the largest for a calendar year ever.
We continue to see positive returns in the credit market in 2014 – albeit at lower levels than recorded in 2013 – supported by the improving macroeconomic fundamentals in Europe and globally, continued high focus from companies in general on preserving balance sheet strength and continued solid demand from investors. We will publish our full 2014 Credit Outlook at the beginning of January.
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