Compiled by Annie Seelaus
HSBC Bank plc, London
Tel: +44 20 7336 3525
The tightening trend that has dominated the secondary sterling market of late began to slow down this week as spreads levelled off in all sectors.
Contributing to the slow down was an influx of primary issuance that has distracted the sterling market over the past couple of days. There were particularly light flows seen in the telecoms sector and the retail sector, while the auto sector and financial sector remained active.
The auto market movements were dictated by new issue rumours. At the week's outset there was market talk of potential new issuance in the pipeline for both Ford and GMAC which caused spreads to widen 5bp-10bp across the sector. They then recovered with what appeared to be confirmation from the company that no new issuance was imminent. The F 7.25% 2007 closed at Gilts+250bp mid, and the GM 8.375% 2015 closed at Gilts+285bp mid.
After weeks of trading at tight levels, the financial sector cracked on Tuesday as several investors sold insurance paper into the market.
The motivation for the sell-off quickly revealed itself Wednesday with the announcement of a large new issue for Aviva plc. The Legal & General 5.875% 2031 issue for instance closed on Thursday at Gilts+67bp mid, 2-5bp wider on the week.
The under-performer of the week was Lafarge. The company suffered from negative ratings news that pushed their bonds wider across the curve. Lafarge was placed on outlook negative on Tuesday by S&P, which caused spreads to widen by 15bp on the week. The Lafarge 6.875% 2012 closed at Gilts+123bp mid.
GKN plc also experienced negative rating action this week, having been downgraded by Moody's to Baa2 on concerns over. Remarkably, however, the news did little to influence spreads. The GKN 7% 2012 issue closed unchanged at Gilts+110bp mid.