Larger than expected pullbacks in several EU PMIs today signal a deteriorating macro landscape, but expectations of further rate cuts ahead (ECB, FOMC) and cash inflows are still supporting secondary spreads and appetite for primary deals.
EUR index performance
- The IG index tightened by -6bp WoW to 114bps, reversing the more negative trends witnessed during previous weeks, and behaved pretty much in line with the Corp IG index (-6bp WoW to 107bp). We expect outperformance of EUR Fins to YE24 as large sectors like EUR Autos continue to be the source of adverse headlines (we do not discard more profit warnings ahead). We prefer Uts & Telcos to EUR Autos (risk/reward).
USD index performance
- US IG spreads tightened a full 5bps last week back to their tightest levels since July after the Fed surprised with a 50bps rate cut. Post-cut, investors continued to favour the front end, which saw strong net buying flows, while selling long bonds as the rate curve steepened
- Note 3Q US GDPNow is showing 3.0% QTD, and while moderation is expected, we are finding it hard to identify negative catalysts for IG spreads in this backdrop (though valuation has become expensive)