Despite sharp moves in FX and equities, financial credit was only slightly softer on Wednesday after it became clear that Donald Trump would be the new president of the United States when the office changes hands in January.
Senior debt was quoted about 3bp-4bp wider in the early throes of Wednesday’s trading session, and there were not dramatic moves in other layers of bank debt.
Donald Trump’s calm and conciliatory victory speech may have helped to soften the immediate impact of the election result, as many had feared he would use the address to make more inflammatory pronouncements.
“Fixed income credit seems supported and buyers are even stepping in,” said one FIG banker. “I think ‘the street’ is a little more experienced following the Brexit vote and we are seeing a more rational reaction. Investors are probably wondering what else there would be to buy if they decided to panic sell securities.”
Issuers will want to monitor conditions in US credit markets, once they have opened, but syndicate bankers were confident that financial institutions could launch new, low beta deals in a matter of days.
“The increased uncertainty and resulting volatility will likely hit the pause button for new issuance in the coming sessions, before markets fully absorb the news,” said Claire McNicol, a senior financials credit analyst at Rabobank.
“Nonetheless, we expect that European fixed income markets to stabilise well by the end of the year, with Donald Trump not taking the office until January 20, 2017. As such, we will likely see new deals in the financials’ space surfacing in the coming weeks.”
Focus will likely shift to the political situation in Europe towards the end of the fourth quarter.
The worldwide growth of anti-establishment feeling could translate into support for French far right leader Marine Le Pen, or weaken Italian prime minister Matteo Renzi’s position ahead of an important referendum on constitutional reform on December 4.
In the long term Donald Trump’s victory will have greater potential to disrupt markets.
Many market participants are concerned about how an isolationist and protectionist agenda would affect foreign firms with US operations. The result could also change the trajectory of US interest rates, with the Federal Reserve potentially reconsidering its rationale for raising rates.
“A dialling back on Fed expectations should be bullish for risk assets,” said one credit analyst. “People were talking about Janet Yellen’s future even before the vote. Few would be surprised if she were to resign. Even if she ironically sanctions a rate hike next month, the trajectory will be even more gradual than had been previously discounted.”
CBs hold firm
National Australia Bank’s rare five year sterling benchmark offered competitive funding in a large size and should pique interest from other issuers. Commonwealth Bank of Australia issued a multi-tranche Aussie dollar benchmark, where it encountered solid interest for a five year floater, in contrast to a 10 year fixed rate piece which clearly struggled. Finally, ING-Diba returned to the Pfandbrief market after a four year absence to issue a tightly priced and well subscribed 10 year.
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