Compiled by Annie Seelaus, HSBC Bank plc, London
Tel: +44 20 7336 3525
Credit analysts in the sterling market were busy this week as a number of large corporates issued results statements across the sectors.
There was a distinct absence of negative headlines with most names reporting strong year-end numbers, in a few cases exceeding market expectations. This seemed to reinforce investor perceptions that credit fundamentals remain intact and that current weakness in spreads is technically driven.
The week was marked by light secondary turnover, and continued pressure on the higher beta longer dated sterling bonds.
Real money trading activity was limited to switches into the new Telereal deal. The trend in spreads was a soft start to the week with a recovery in stability towards the end. Any outright demand for paper was concentrated in the five to 10 year area of the curve from most investors.
The utility sector was more active than others. Following the rest of the market, the new EDF 2024 bond issue traded wide at the beginning of the week, around 5bp out from new issue, only to recover a few points into Thursday (yesterday).
The bonds close at Gilts+87.5bp mid, having been priced at Gilts+85 last week. RWE was also active with strong full year results released Thursday.
The company showed significant progress in cost reduction as well as a renewed commitment to debt reduction, both of which were well received by the market. The bonds traded 3bp tighter as a result.
The story in the telecoms sector was mixed. British Telecom suffered from the large Telereal deal coming to the market as it represents a form of BT risk.
The BRITEL 5.75% 2028's traded as wide as +126bp mid, before finding a bid and recovering a bit to close at Gilts+120bp mid. The recently issued France Télécom 2034 issue remained volatile, widening out to Gilts+124bp mid before finding some support and trading back into Gilts+118bp mid.
Financials also had a mixed week.
Good results from Aviva plc helped keep insurance spreads steady at the beginning of the week. While they did not trade any tighter they remained unchanged, which was positive in the widening spread environment.
On Thursday S&P cut the ratings on Abbey National one notch, causing its spreads to widen. Abbey's senior debt immediately traded 2bp wider while the subordinated paper widened 5bp-7bp.
Other main movers of the week were BAE Systems, which tightened 5bp after posting its first annual profit in four years, and Lafarge, which traded 2bp tighter after strong full year numbers.
