It was a risk-on week in European credit markets as spreads ground tighter together with bund yields rising, following a flurry of positive news including:
i) Signs of optimism on both the US-China and US-Europe tariff discussions;
ii) A better-than expected Q3 earnings season with close to 60% of European and 80% of US companies beating EPS estimates; and
iii) Relatively better economic data out of the Euro Area with PMIs beating survey expectations.
The primary markets showed no signs of slowing, as investment grade companies issued €19bn across 26 bonds, equally split across corporates and financials. Volumes were supported by Shell’s €3bn triple-tranche deal and Apple’s return to the Euro market after two years (with the €2bn green bonds pushing Reverse Yankee issuance to a fresh record of €112bn this year).
Strategy: Hold reds EURUSD FX OIS cross currency basis widener
Receive €100mn 1Yx1Y EURUSD FX OIS basis (swap start date 7 Oct 2020, swap maturity date 7 Oct 2021) to remain in a 1Yx1Y EURUSD FX OIS basis widener at -27.7bp versus an entry level of -32.7bp; (Cross currency basis 4Q’19 Outlook 3rd October 2019); P&L since inception: -5bp of yield. Courtesy: JPM