The trend from the first week of the year was repeated last week with very low risk appetite. Indeed, the sell-off makes it one of the weakest starts ever. The most significant message from investors is that they remain sidelined waiting for primary issuance and repricing of secondary markets. Stocks are generally hit harder than credits but still iTraxx Main widened 11bp last week to approximately 96bp and iTraxx Crossover widened around 30bp to 384bp.
Further, they have relatively high liquidity despite initiations of fund outflows as the sell-off began late in 2015.
Corporate issuance has been relatively modest and we expect a pickup in activity before entering black-out periods. This said, AB InBev did a record USD46bn deal (in several tranches) funding the takeover of SABMiller (L:SAB), which is the second-highest issue ever. Our overall expectation for spreads in 2016 remains for a (relatively modest) widening.
Norway continues to be the big uncertainty amid the oil price collapse. We have already seen restructuring cases in the Norwegian oil-related markets (and much more to come) and we remain bearish on these markets and banking, which is typically late cycle. Thus, we expect a significant pickup in provisioning levels in companies' Q4 reports (spurred on by Norwegian FSA on the back of surprisingly low levels currently) and to be continued in 2016.
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