Compiled by Annie Seelaus,
HSBC Bank plc, London
Tel: +44 20 7336 3525
For the first time in several weeks it was relatively quiet in the sterling primary market, leaving plenty of time for investors to focus on secondary activity.
With strong equity markets and a fall in underlying government bond prices, spreads tightened with few exceptions over the five day session.
Better than expected earnings announcements from a few key corporates and a favourable change in German tax law for insurers underpinned the good tone and reinforced the strong bid across the sector throughout the week.
Most of the focus this week was on the auto sector. With GM earnings due on Wednesday, and Ford earnings released Thursday there was above average volatility and high secondary volume passing through. Both companies' numbers beat market expectations, and while they were weak they were enough to tighten spreads across the curve.
The Ford 7.25% 2007 issue tightened 15bp on the week to close at Gilts+216bp mid.
The financial sector was the other strong performer this week, benefiting from a change in German tax law aimed at helping the struggling insurers. The change should save the large German insurers close to Eu10bn this year. Spreads in the relevant names tightened significantly, particular in the euro market, but the news brought a good tone to the rest of the sector as well and most credits were 5bp tighter on the week.
The Aviva 6.125% 2022 perpetual issue was particularly well bid, closing out the week at Gilts +116bp mid.
Stronger than expected results out of retailer Gus Plc encouraged the strength in the retail sector. Their first half sales numbers surprised the market on the upside, and spreads came in 5bp. The Gus 5.625% 2013 issue closes out the week at Gilts +72bp mid.
As we move into next week the market will focus on whether this strong tone can sustain the impact of £1.9bn of bonds coming to the market from the Mitchells & Butler pub securitisation.