“It’s almost like a damp squib,” said one syndicate banker in London. “The market reaction has been muted and while today is not the best to do a deal it feels pretty constructive overall.”
He added that the new issue market could restart on Thursday, depending on how US markets react to the result.
There was an initial sell-off in euro credit, with hybrids down by around a point and some corporate credit spreads widening by around 25bp, according to one investor. But that mood quickly retraced, with corporate credit only around 2bp-3bp wide of its opening levels by midmorning.
As after the UK’s vote to leave the European Union in June, buyers swiftly entered the market, looking to pick up value in a tight spread environment. However, that buying activity was likely to be limited, said one fund manager in London.
“I do not imagine that volumes going through the cash market were very large,” he added. “It was probably more tied with some accounts putting feelers put out there as they looked to buy on the dip.”
“People so ingrained in a buy the dip mentality that they just came in and tried to buy anything that was lower,” said one fund manager in London. “Indices are a touch wider but it’s nothing really dramatic, the crossover is 10bp wider but I wouldn’t be surprised if it goes back towards unchanged by the end of the day.”
With the European Central Bank already buying in the primary and secondary corporate cash bond markets, participants seem to be operating on the expectation that the bank will extend its Corporate Sector Purchase Programme, said the investors.
“There has been a spike in CSPP buying as the ECB’s buying volumes have got steadily larger,” said another fund manager in London. “Although there has been tapering talk, more pressing is how to deal with a scarcity of paper and there has been more discussion around the depth and broadening of CSPP. The view is that while negative rates may be a thing of the past, QE is not.”