European markets are shrugging off their knee-jerk reaction to Trump’s victory in the U.S. Presidential Election, with many asset classes now starting to pare their early losses.
Credit seems to be slightly outperforming equities, and leveraged finance traders say that while secondary prices were marked down a point or more early in the session, the lack of actual selling has seen prices recover. Moreover, bankers are optimistic that primary activity in Europe will be largely unaffected by the result.
Equity markets reacted fastest and hardest to the news. The Nikkei shed nearly 5.5%, illustrating how bearish the market tone was first thing. The FTSE 100 initially fell more than 100 points, but is now slightly in the green, while the Eurostoxx was down more than 2%, and is now just 1% in the red.
All eyes will now be on the U.S. market open, and here the futures are indicating a sharp move south. The Dow Jones Industrial Average is forecast to open more than 300 points, or roughly 2%, lower (note though, that as reported the futures market was projecting a 400-point fall earlier this morning).
Safe-haven assets meanwhile are seeing their rally fade a little. The Bund yield was five basis points tighter earlier in the session, but is now two basis points tighter, at 17 bps. The gold price is up 2.25%, having been roughly 2.5% higher in early trading.
The iTraxx Crossover is a touch wider than at the open, having now moved out 12 bps to 338, but secondary prices show credit is outperforming equities. Indeed, loan traders across the board say the market opened a little softer, but has now reversed its losses, and there were no forced sellers.
If anything, market participants are frustrated that their hoped-for buying opportunities did not materialize. “Not many sellers are appearing, and we were hoping for some opportunities,” commented one trader. “Some loans were initially down a quarter- to half-point, but quickly got back to where they were, and offers are static because there’s a queue of people looking to buy paper.”
“Loans were half a point down, but are now back to where they were last night,” confirms another market participant. “U.S. equity futures are down, but that was all very short-lived, and now high-yield is back to normal. We are even seeing some investors that have gone in this morning looking for bargains, but are now having to lift offers.”
High-yield secondary players paint a similar picture. “Initially we saw the Street trying to mark prices down, but there has been limited trading at lower levels,” said one buysider. “There is no panic-selling, and everything is very measured and orderly. Prices are coming back now, and any trading is not far off yesterday’s closes as credit outperforms equities. You have to remember too that we have CSPP and CBPS, which limits any widening. Given how muted the market reaction is, it wouldn’t surprise me to see issuance quite soon.”
As for primary, all eyes will now turn to the cross-border loan financing from Genesys, which held bank meetings on Monday and Tuesday, but has deliberately waited for the outcome of the U.S. election to release price guidance. Meanwhile in the bond market Perstorp is also out with a cross-border offering. It is roadshowing until next Monday, and so has plenty of time to gauge the market reaction.
As to whether more new issues will follow, bankers sound fairly confident that just like secondary, concerns will be shrugged off quickly — in the short-term at least. Earnings season may keep a lid on high-yield supply in the near term, while bankers suggest that how rates move in response will be a key factor in year-end supply.
“I don’t think the result has a big impact on the market’s ability to do deals, but the big question will be what happens to rates, as I would expect most pre-year-end issuers to be sensitive to double-Bs and rates,” comments a banker.
Meanwhile loan bankers are optimistic that the near-term pipeline remains in place, but admit it’s too early to truly gauge how supply will impacted. “Generally I agree that the loan pipeline should continue to come through, though I think it’s too early to really tell,” said one banker. “European credit is still well-bid, but we will have to see when the U.S. shows up. I think loan deals can still go ahead, though transactions might require some tweaks to pricing.” — Staff reports
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