Credit Market Daily #71


Good Afternoon!

Thursday ended as it started with risk assets weaker across the board and there has been a reasonable rebound in European and UK equities on the open which followed a positive session in Asia.

Following on from the soft UK housing data yesterday, this morning saw weak UK Consumer sentiment for December come in at -45 vs. -40 expected and -42 previously remaining close to Sep-22’s all-time lows of -49.

This is comparable to German Consumer confidence, which is doing a more convincing impression of having bottomed. It will be interesting to see if the 2 diverge with the UK heading lower whilst Germany picks up.

Aside from the weak UK consumer confidence numbers UK retail sales which also surprised on the downside Sales Ex Auto Fuel were down -1.1% MoM vs, +0.4% expected and -0.3% previous.

Both data points speak to a consumer who is continuing to batten down the hatches.

The value component of sales grew whilst the volume component declined (see below) – this gives you some insight into how retailers’ trading updates have been strong on the whole.

I wonder if we won’t see some normalisation in pricing if volumes decline further, especially if energy costs are expected to reduce (albeit at elevated levels).

It’s not all bad news in the UK though – Andrew Bailey was on the tapes saying he thought the worst of inflation in the UK is behind us although made no comments on reducing the pace of hikes.

Finally, German PPI came in hotter than expected this morning.

I think today’s close will likely set the tone for next week.

Credit is currently a touch softer with Xover at 432 +5bps vs. yesterday and being biased I believe Credit has a better handle on reality than equities!


New Issuance continues, and generally, deals have remained well covered in terms of book size with issuers printing deals tighter than price talk (this is usually the case, but given where we are and have been for primary issuance this is positive)

Earnings begin to pick up next week and so we should see some increase in dispersion between the haves and the have-nots, the cyclical and the non-cyclical and the highly rated vs. lower rated names.

High Yield

Yesterday’s prediction that High Yield would outperform investment grade and equities in total return terms came to pass, except in the US where High yield underperformed Investment grade in total return terms.

GBP, EUR and USD index spreads moved +3 bps (Z+642 bps), +2bps (Z+455 bps) and +11bps (Z+449 bps) respectively.

Telecom Italia is the main bond in the market today with a benchmark € 5-year deal with price talk in the low 7% area. We also have a €100mm tap from B2 Holdings.

If I am right about the move back to 500 in Xover, issuance is likely to pause.

Investment Grade

Investment grade ended lower yesterday in total return terms on the back of the move seen in rates. Overall high duration, highly rated market segments underperformed.

GBP, EUR and USD index spreads moved +1 bps (Z+171 bps), +1bps (Z+158 bps) and +0.5bps (Z+125 bps) respectively.

Unlike High Yield, Investment Grade new issuance will likely take longer to stop if risk assets sell off given their better resilience. As we move further into reporting season issuance will also naturally die down with blackout periods coming into effect.


Rates continue to see yields move higher. Gilts are bear steepening with the front end +2bps higher and the long end +7bps higher at the time of writing.

Bunds are also bear steepening with a similar sized move in the long end and the short end underperforming Gilts +5bps.

US treasuries are around 3bps higher across the whole curve.

The FED goes into a blackout period on Monday, with BoE and ECB going silent from next Thursday. The window for Central bankers to make more noise ahead of the rates decision is rapidly closing.

10-year Gilts, Bunds and Treasuries yield 332 bps, 213 bps and 343 bps respectively.

Eco Data

Next week we have all the PMI’s, German Business Climate, US pending home sales and sentiment.

What Has Caught Our Eye

Retail sales, Great Britain: December 2022

The ONS published UK retail sales for December.

As mentioned above, value and volume components continue to diverge.

Non-food retail unsurprisingly saw the largest decline, with cosmetic, sports, games, toys and jewellery stores reporting declines of 6.2% MoM, and Department stores were down 3.1% MoM. Clothing sales were up 1% MoM.

Food Stores saw their volumes decline 0.3% MoM, with overall sales down 0.1% on the month with retailers pointing to consumers purchasing ahead of Christmas. Overall Food revenue volumes remain on a downward trend.

Overall consumers planned to reduce spending and it is hard to see this sentiment changing anytime soon:

“Results from our Public opinion and social trends bulletin covering the period 7 to 18 December found that 6 in 10 (60%) adults said they were planning on cutting back on the amount of money they spent on Christmas in 2022 compared with last year. The most frequent ways these adults were planning to spend less money during the 2022 Christmas season were buying fewer presents (79%) and buying less expensive presents (73%). Our Public opinion and social trends bulletin for the period 21 December to 8 January 2023 published on 13 January 2023 reported consistent estimates.”

ONS , December Retail Sales.
Click to Enlarge, Source ONS

UK Consumer Confidence

The GFK consumer Confidence survey supports the Weak retail numbers with the Major Purchase index down 6 points on the month.

The only item that saw an improvement was the Personal Financial Situation over the next 12months index, which given the 5 point decline in the General Economic Situation for the next 12 months is a bit of a puzzler.

There is certainly a long way to go as the overall index bounces along the bottom, and suggests that consumer facing and discretionary industries and services are likely to feel the knock on effect for the coming months.

“After a short-lived and weak rally in Q4 last year, UK consumer confidence has slipped to -45 in January. Consumers have a New Year hangover – but it’s of the economic kind – with high levels of pessimism over the state of the wider economy. And unlike a conventional hangover, this one won’t vanish quickly. The only glimmer of hope in the results is a slight uptick in the outlook for our personal financial situation, but this is of little comfort because it is still 25 points lower than this time last year. This month’s six-point decline in the major purchase index does not augur well because consumer spending is a driving force of our economy and future growth. With inflation continuing to swallow up pay rises, and the prospect of some shocking energy bills landing soon, the forecast for consumer confidence this year is not looking good. One thing we can be sure of is that 2023 promises to be a bumpy ride.”

GFK Consumer Confidence Survey

CGA & Alix Partners MarketRecoveryMonitor, Review of GB pub, bar and restaurant supply

This quarterly report is astonishing – more licensed venues have closed in 2022 than in “Covid-ravaged 2021 and only marginally fewer than in 2020”.

The good news for the likes of Stonegate which reports on Monday is that Pubs have seen the smallest declines in Q4, whilst night clubs are down 6% QoQ.

Additonally – and sadly- independent venues are going under at a much faster rate than large hospitality groups. You have to think that these large groups will be the ultimate beneficiaries if they can weather the perfect storm that has hit the sector.

Overall it makes for grim reading with a clear divide between winners and losers.

“a drop of more than 1,600 hospitality venues in this edition of the Hospitality Market Monitor is quite shocking..the closures are a result of very high inflation, which has hit profit margins and made real-terms growth difficult. Energy and food costs rose relentlessly in 2022, and an extension of this—plus more severe headwinds, including fragile consumer confidence, rail strikes and labour shortages—puts thousands more venues at risk of closure in 2023, with independents in particular peril”

Jan ’23 CGA & ALix Partners Hospitality Market Monitor

Click to Enlarge
Click to Enlarge
Click to Enlarge


High Yield

Click to Enlarge

Investment Grade


Click to Enlarge


Click to Enlarge


Your account has been created successfully


Your categorisation has been upgraded successfully

You can’t re-categorise

Please email [email protected]
if you believe this in error

You do not qualify

Unfortunately you don’t meet the necessary criteria to upgrade your account.