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Global Fixed Income Focus - December 2016

24 January 2017 Chris Fenske

Financial markets activity in December was muted by normal year-end seasonal factors. These were exacerbated by uncertainties over the Italian banking sector, particularly relating to Banca Monte dei Paschi, which failed to achieve a private sector recapitalization, and needed state rescue. The strong US dollar and the upward trend in US interest rates also worsened sentiment regarding emerging markets, with Turkey and Mexico underperforming within the asset class, while Russia enjoyed improvement on the back of expectations of a potentially easier sanctions regime under President Trump.

  • This month's special report reveals how prolonged strength or weakness in a company's CDS during 2016 translated into their short term equity performance.
  • North American energy sector spreads tightened over 40bps across the entire credit curve in December, largely due to the late-November rally in crude oil prices driven by OPEC's final agreement to implement production cuts.
  • The Markit iTraxx Europe started the month at 79.4bps and by late-December it had dipped below 70bps, though it gave up some gains and ended the year at 72bps. It was a similar story in North America, with the Markit CDX.NA.IG index tightening by 5bps to close 2016 at almost 68bps.
  • The Markit iBoxx " Liquid Investment Grade Indexreturned 2.24% in December, and a whopping 11.83% over the full year. This far outpaces the performance of the Markit iBoxx " Liquid Investment Grade Indexand Markit iBoxx $ Liquid Investment Grade Index, which returned a still respectable 4.72% and 5.52%, respectively.
  • November's post-election sell off in municipal bonds reversed course slightly in late December, with 10yr AAA municipal bond yields ending the month 33bps lower from their 2016 peak of 2.64% set on December 1.
  • Securitised products spreads were generally flat in December, with most of the activity taking place during the first two weeks of the month. Issuance dropped sharply across most non-residential mortgage sectors, with the exception of US consumer ABS, which exceeded 2015 by almost $10bn and ending the year at almost $190bn in total issuance.

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Chris Fenske | Director, Head of Fixed Income Pricing Research
Tel: +1 212 205 7142

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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