Headlines
• Indices are flat as credit markets seem to have overlooked the heightened geopolitical risk.
• France and Germany have avoided a technical recession (for now).
• A German bank is the first to introduce negative deposit rates on personal accounts.
Market commentary
Overall, we saw a fairly quiet week for European credit markets and major indices remained flat with low volatility during the week. W/w iTraxx main (IG) tightened by 1bp, while iTraxx crossover (HY) widened by some 4bp w/w. We were slightly surprised to see markets ignoring the risk of an escalation in the Russia/Ukraine crisis (NATO spotted Russian troops crossing the Ukrainian border) showing that the strong risk sentiment could continue unabated if the conflict carries on.
On Friday, third quarter GDP figures for France and Germany showed that Europe’s two largest economies barely managed to avoid recession (at least for now), posting q/q GDP increases of 0.3% and 0.1% respectively. The meagre growth figures could provide further backing if Mario Draghi wishes to expand the ECB’s asset purchase programme to include corporate bonds and sovereign debt.
In Germany, a small bank in Thüringen (Deutsche Skatbank) was the first European bank to announce negative rates on personal instant-access accounts with a balance of more than EUR500,000). Government bonds have already been trading with negative yields but the move by the small German bank marks the beginning for personal accounts. If more (and larger) banks follow suit, this could spur investment into riskier assets such as corporate bonds and stocks as savers try to avoid losing money on low-risk deposits.
The primary market was fairly active with many new issues across the corporate and financial space. In the investment-grade space, we saw primarily large well-known German names printing at the very long end of the curve and in the Nordics, unrated Finland-based meat processing company HKScan printed a 5Y EUR100m issue, printing at MS+335bp.
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