Credit Markets Suffer Another Worst-in-Decade Rout This Week

2020-03-20 04:39:30.673 GMT


(Bloomberg) -- Credit markets once again had one of their worst weeks since the global financial crisis, underscoring the difficulty policy makers are having in calming the turmoil triggered by the coronavirus pandemic.

While tentative signs of recovery in appetite for riskier assets have emerged as investors take stock of stimulus
measures, broader indicators for credit remain grim. Yield premiums on dollar bonds in Asia were little changed Friday, leaving them up the most this week since at least 2009. The price of insuring against default in the region has jumped to a four-year high, and dollar note sales slumped to just one this week from already low levels.

Efforts by the Federal Reserve to European Central Bank and Bank of England to pump liquidity into the financial system and ensure companies have access to cash created pockets of relief this week. But the bigger picture has been one of unprecedented outflows from debt funds, businesses drawing down credit lines and traders cursing what some call unreal screen levels while adapting to the disruptions of working from home in many cases. “It seems to me like liquidity in the bond market has evaporated,” said Charles Macgregor, head of Asia at Lucror Analytics. Most asset managers at the moment are just interested in protecting their portfolios against losses, and “I’d be surprised if any of them are thinking of buying anything any time soon aside from very safe assets,” he said.


* Issuance of dollar notes dried up even more this week, dropping to $500 million in just one deal from an already low $2.65 billion last week, according to data compiled by Bloomberg
* Asia dollar bond spreads were little changed Friday morning, according to traders. They jumped 121 basis points this week through Thursday, the biggest increase since at least 2009, according to a Bloomberg Barclays Index
* The Markit iTraxx Asia ex-Japan index of credit-default swaps was at 157 basis points Thursday, the highest since 2016


* The U.S. investment-grade market blew through all statistics this week with a $35.6 billion outflow from mutual funds and ETFs. High-yield funds lost $2.91 billion, smaller than last week’s withdrawal
* UPS and Disney led the charge in the primary market, followed by deals from MetLife Inc., Citigroup Inc., Northrop Grumman Corp., JPMorgan Chase & Co. and Morgan Stanley


* Investors on Thursday cheered a massive ECB stimulus package, as credit risk for the region’s companies fell the most-ever, and the primary market came alive with four deals
* Still, activity has been limited to the safest borrowers. The German state of North Rhine-Westphalia sold euro notes while AXA Bank Europe SCF, Toronto Dominion Bank and Bank of Montreal all offered covered bonds, which are low risk because they’re usually backed by ring-fenced assets like mortgages

By Ken McCallum and Denise Wee