Last week saw a continued deterioration in risk sentiment on the back of a further decline in the oil price and an increase in defaults. At one point yesterday Brent traded below its lowest closing price during the financial crisis (USD36.6 per barrel).
In the US several large HY credit funds started liquidating assets following a large number of redemption requests.
With increased uncertainty in the market and investor year-end effects, credit indices widened significantly over the week. Itraxx Main widened 10bp to close at 82bp and Itraxx Crossover widened 49bp to close at 343bp. Bad sentiment continued going into this week and given recent developments in the US, we will likely have some turbulent weeks concluding the year.
Despite the struggling secondary market, the primary market was still active and we saw a few Nordic issuers coming to the market.
Following the non-legally binding climate accord at the COP21 meeting in Paris this weekend, the green agenda could edge higher on politicians' agenda in the coming years. This could come in the form of both higher costs on CO2 emissions and bigger subsidies to CO2 reducing investments. In the Nordic region, the biggest beneficiaries from such an agenda would be the local utilities (characterised by hydro, nuclear and wind) but also companies that produce CO2 reducing equipment such as Vestas, Danfoss, Neste and Ahlstrom.
Focus this week will be on the FED's decision on Wednesday. According to Bloomberg consensus, the probability of a 25bp rate hike is 76%.
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