MNI Credit Weekly: Pre-Election Lull

• The market remains wary of political risk but did take some comfort from Le Pen’s comments that she is “respectful of institutions”. Nevertheless, the OAT-Bund spread remained at +81 – unchanged from Monday’s wides – reversing the tightening to +75 mid-week.
• Index OAS spread consolidated over the week. Monday saw a follow-on widening of +3bps from Friday but we closed -1bp tighter overall, albeit +8 from last Thursday. Financials (OAS -3bp) were a higher beta version of corporates as volatility in the government bond market reawakened fears of a “doom loop” for banks. As the market stabilised, fins were able to recover some of last week’s underperformance.
• Primary slowed considerably as market volatility discouraged borrowers. We point out below that PRIFII left value for investors and that WPC was able to get better terms in $.
• Fund flows remain positive in € and $, though £IG did see some outflows in contrast.
• Macro Risk variables recovered somewhat over the week. European equities were 1-1.5% better. S&P up 0.7% but the Nasdaq failed to continue its recent bull-run.
• The Week-on-Week sector chart on Page 2 shows data from Thursday. The bulk of the widening occurred last Friday.

24.06.21 MNI Credit Weekly.pdf