Credit Market Daily #69


Good Afternoon!

This morning we opened a little softer in risk assets with Equities in Europe and the UK down around -30 bps, with US futures looking similarly soggy.

Xover is +4 bps @420 wider, relatively sanguine, rates look to be higher, with the UK the under-performer.

So, what has changed?

Unfortunately it is more of the same – Central Banks and Inflation.

We have had stronger than expected wage earnings in the UK, hot on the heels of Andrew Bailey’s comments yesterday that the shrinking UK labour force and China re-opening would keep upward pressure on Inflation.

Average Weekly Earnings came in at +6.4% 3M/YoY vs. 6.2% expected and we have UK CPI at 7a.m. tomorrow morning with 10.5% expected and 10.7% prior.

Add to that the ECB’s Lane saying interest rates must remain high enough to restrict economic growth.

German CPI came in as expected at +8.6% YoY and flat vs. November, no downside surprises here.

It is clear that the US is quickly becoming the odd one out from the big 3 CB’s in terms of near term rate expectations.

Away from Central banks the latest insolvency numbers in the UK show small business continue to be pressured.

This comes with today’s headlines that BritishVolt is going into administration.

In European High Yield we have had the news that TelePizza is seeking a debt for equity exchange and Matalan published a cleansing statement outlining its planned restructuring.

So, we are beginning to see defaults increase and they will continue to increase throughout the first half of the year.

As we covered in CMD #66 with Standard & Poors 2023 outlook default rates will increase, but the base case is they peak around their long term average c3%.

On to Germany, where the ZEW Economic sentiment expectaions indicator jumped a whopping 40 % points to +16.9%.

We flagged the importance of the decline in gas prices ,and, it, along with the German state’s price caps are clearly having a positive impact on expectations.

The ZEW current economic outlook for Germany showed a small increase of +2.8, with the index now sitting at -58.6.

So hope is alive!

German Economic Sentiment on the Up
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We have the Bank of Japan meeting tomorrow morning with further expectations of tightening via increased yield caps. Then we have UK CPI.

Earnings season is ongoing and will also drive sentiment – of note Ocado reported this morning – its numbers disappointing in the context of recent UK retailers’ reporting.

Goldman Sachs and Morgan Stanley will report this afternoon.


High Yield

Yesterday was a relatively quiet day given the US was out.

High Yield outperformed Investment Grade and traded in line with Equities.

The new Tereos deal had initial price talk of 7.5%a and this has been tightened to 7.25% to 7.375%a indicating appetite for paper.

GBP, EUR index spreads moved -5 bps (Z+644 bps), -3bps (z+452 bps) and -9bps respectively.

Leaders and Laggers

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Investment Grade

GBP and EUR index spreads moved -2 bps (z+172 bps) and – 2 bps (z+161 bps) respectively.

Rate moves meant that IG under-performed HY on a total return basis yesterday.

New issuance continues aplenty with both non financials and financials in the market.

Monday’s issuers included ACEA, Autostrade, ENW, ENBW and Eurofins .


As mentioned above rates’ yields are higher across the board led by the UK and the US.

The move in the UK is across the curve whilst the US is Bear steepening.

The 10-Year Gilt, Bund and Treasury yield 343 bps, 217 bps and 356 bps respectively.

Today’s Events

Eco Data

Today’s Reporting
Petra Diamonds

What Has Caught Our Eye

German Industry – the Gas Gap

Bloomberg have published an article “GERMANY INSIGHT: How Industry Is Weathering the Gas Crisis”.

In it, they summarize the extent to which German industry appears to have weaned itself off Russian Gas.

Essentially, manufacturing production has not diminished in the face of reduced access to gas, in fact the authors posit that a large part of this is likely due to efficiency gains as well as fuel substitution.

Some of the more interesting charts below:

“If these energy savings can be sustained — the sizable contribution from efficiency gains suggest they might be — Germany’s business model looks like it will also remain in a relatively strong position to operate in a world where European energy costs remain persistently higher than they were before the crisis. The one blip is likely the chemical industry, which might continue to struggle”

Maeva Cousin, Bloomberg ,”GERMANY INSIGHT: How Industry Is Weathering the Gas Crisis”, 17-Jan-23
German Manufacturing has Kicked the Russian Gas Habit
Click to Enlarge, Source Bloomberg
Energy Intensive companies have managed the smallest reduction in gas use
Click to Enlarge, Source:Bloomberg

UK insolvencies

The monthly stats from the Insolvency Service are out and show total company insolvencies remain elevated, but slightly lower sequentially.

Still the headline figures are ugly:

The number of registered company insolvencies in December 2022 was 1,964:

32% higher than in the same month in the previous year (1,489 in December 2021), and
76% higher than the number registered three years previously (pre-pandemic; 1,119 in December 2019).

Given the data is monthly it is a great indicator of how UK companies are holding up (or not) ahead of a recession.

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High Yield

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Investment Grade

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