Credit market monthly review: June 2017
Senior Strategist (Credit, IG, HY and SSA)
Download the Research 10/07/17 611 KB PDF
It takes two to tantrum - credit reaction to rate volatility so far limited
- Further strength in credit markets in June pushed EUR spreads to multi-year lows, presenting an unfavourable asymmetry of risk. September or October iTraxx option hedges may serve well as a safeguard from a potential rise credit market volatility.
- Credit has been resistant to the rates tantrum of the past two weeks. That said, decompression between High Yield (HY) and Investment Grade (IG) is a key risk to watch out for, if and when European Central Bank’s (ECB) quantitative easing (QE) tapering arrives in earnest.
- The fading reflation trade held back performance across USD HY sectors in June, which managed to just offset the 2% drawdown seen in the energy sector. However the recent rebound in the oil price and the rates tantrum may offer a respite.
- Markets witnessed record breaking EUR corporate supply in the second quarter (Q2) with a few large, multi-tranche deals and ample reverse Yankee bonds hitting the market. Over the full year gross issuance could exceed €300bn.