EU Close

iTraxx has closed -2/-8 tighter and ends the week +1/+7 wider. Risk assets are posting a rally into US afternoon, looking past the rates moves to the healthy data.

Credit spreads started strong this week but will end well wide on NYCB triggered CRE/financial risk appetite re-pricing. It paints a weary picture for spreads going forward given supply was relatively muted and rates were lower for most of the week (& not necessarily on bad activity data) - i.e. the backdrop for spreads was otherwise supportive.

On rates, the sell-off in the US takes the belly only back to pre-fed levels/Tuesday. Curve flattening on the other hand has been one-directional through the week - 2s10s -15bps flatter, 5s30s -11bps. Credit analyst notes post-fed/lower rates that we could (finally) see spread curve steepening (from more long-end supply/less yield buying) may be timed out on todays moves.

Yield differentials further out the curve are little changed between the 3 majors. Sterling rates continue to underperform Euro rates (helped by BOE Chief Eco Pill's remarks today) - BOE pricing still sub 100bps of cuts this year - keeping yields attractive against peers. Its spreads have bucked $/€IG moves to remain tighter this week.

On Fundamentals EPS forecasts on SPX & SXXP indices look unch. over the week. We do see a fall in 4Q23 EPS for S&P (includes mix of reported & fcst'd) but we don't see it being passed onto '24 fcst's. Our calc's on median & weighted index leverage are unch to lower over the month as well. Earnings likely to remain in the backseat for now. We will refrain from breaking down recent trends in HY fundamentals (we touched on CCC's earlier this week) on a close, but todays rates moves likely to continue the focus on refi costs & ICR's in the space.

Our €IG equity basket ended down over the week dragged on by Financials (-1%) & headlined by BNP's -10% post-earnings fall (its a index heavyweight). Relative strength from Auto equities. $IG basket was up, broad based with tech only sector in the red.

On supply we had $21b in $IG this week below expectations for $20-25b & it was within expectations for € as well. Supply expectations have stay ~unch despite a quieter macro calendar; investors looking for $25-30b in $IG & €20b in €IG/HY. $IG Feb expectations are for $150b.