Last week was all about the ECB and what measures Mr. Draghi could use to fight the signs of deflation and raise inflation towards the 2% target.When the bazooka was fired and the smoke had subsided, the credit index had tightened significantly and we are down at November/December levels again for both Crossover and Main.
The ECB cut the deposit rate by 10bp to -0.4% and increased the monthly QE purchases by EUR20bn to EUR80bn. Most importantly for the corporate bond market the ECB expanded its QE programme to include investment grade euro-denominated bonds issued by non-bank corporations established in the euro area (extended asset purchase programme, AAP), starting towards the end of Q2 16. The AAP should in our view provide considerable support to spreads but on the other hand liquidity should dry up even more in the already illiquid euro-market. We estimate the total eligible purchase amount at about EUR400bn. See more in our published piece here .
Commodities continued on a strong path with Iron ore climbing some 10% during the week, the oil price gaining almost USD2/barrel during the same period and gold standing at a 12-month high of USD1255.
Last week 35 issuers priced EUR38bn across 41 tranches in Europe and year to date issuance activity is about 15% below 2015. However, as a result of the AAP and tighter spreads/increased risk sentiment we expect issuers to use this opportunity and issuance activity to pick up during the coming weeks.
This week we present a new trade idea: Close of trade - sell Stena 2017 (EUR) after recent performance (see slide 5).
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