MNI Credit Weekly: Demand-Driven Tightening

Despite seemingly already tight levels, spreads rallied hard in what was the second strongest week of the year so far for investment grade credit.

• IG cash spreads 8.6bp tighter as credit remains in the goldilocks zone and there was a broad absence of negative European newsflow, alongside some interesting M&A stories. Macro data did little to derail this with rate cut expectations marginally lower and key Fed projections due next week.
• Demand as much as anything else is driving this we feel; negative NIPs are increasingly common, and primary is driving secondary tighter on some curves. Supply has been little bigger than “median”, this being the 5^th quietest week (of 11) this year and cover the second strongest of the year (at 4.4x). This was also, unsurprisingly, the second strongest week for NICs.
• Credit quality continues to hold up well with the tail end of earnings season again lacking much fallout. Management teams will now be on the road pushing their stories and holding investor days to set their narratives for the year.
• FARSide View: Elo downgraded to HY, but spreads held up reasonably well after an initial wobble. Rolls-Royce is halfway back to IG; now split-rated after an upgrade from S&P.

24.03.15 MNI Credit Weekly.pdf