The credit market was relatively quiet last week due to the Easter holiday. Focus continued to be on the aftermath of the ECB meeting where the decision was taken to expand the QE programme to include investment grade euro-denominated corporate bonds.
Short term we believe we could see continued spread tightening following the ECB announcement - especially in the front end and we also believe that the effect on spreads will be front-loaded ahead of the actual purchases executed. The secondary market liquidity is set to be affected by the ECB purchases and spreads might decline to levels that are uninteresting to other buyers except the ECB. However, short term we continue to believe the market will be well supported. During last week the iTraxx Main and iTraxx Crossover were nearly unchanged following steep spread tightening since the ECB meeting.
We have initiated a trade idea on DSV 2020 and DSV 2022 (DKK bonds). We believe that investors are focusing too much on the integration risk related to UTI and less on the fact that DSV has lowered its target net debt to EBITDA to 1.0-1.5x from.
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