Global Fixed Income Strategy - January 2020

Monthly insights and updates from the Invesco Fixed Income team.

The Credit Suisse Western European Leveraged Loan Index (“CS WELLI” or “Index”) returned 0.51% in January, comprised of principal return of 0.16% and interest return of 0.35%.1 

Markets began the year with enthusiasm as a US and China Phase-one trade deal was signed and the UK/EU (Brexit) departure was a fait accompli. Sentiment was short-lived with the outbreak of the coronavirus in China. Commodities have been greatly affected; for instance, oil prices falling by almost 20% from its highs seen at the earlier in the month. The Euro Stoxx 50 fell by 2.8% during the month2 and the Chinese CSI300 lost $720 billion in market-cap (7.9%) when the market reopened following the lunar new year holiday.3 Global growth is now estimated to contract to below 1% in the first quarter of 2020, a significant pull-back the from previous consensus of at least 3%. A rebound in Q2 is expected reflecting delayed consumption effects in China.

Despite the coronavirus-induced volatility, the European leveraged loan market’s 0.51% return during the month1 was supported by benign macroeconomic fundamentals in Europe and a favorable supply/demand technical. Primary issuance conditions were exceptionally strong at €14.4 billion – more than in any month of 2019 – and in stark contrast to the €1.5 billion recorded in January 2019. Issuance was supported by a steady pipeline of M&A and LBO (€7.8 billion) transactions, including jumbo transaction Froneri (B+/B1) that allocated a €5.75 billion cross-border financing package backing the firm’s takeover of Nestle’s US ice cream business. Additional activity came from a flurry of repricing and refinancing transactions (€6.6 billion) as new issue yields continued to fall to 3.89%, down 21 basis-points over the past three months.4  

Despite strong primary issuance, secondary prices rallied with the average price of the CS WELLI up by €0.23 to €98.54 at the end of the month.1 In particular, ‘CCC’ assets returned a strong performance of 1.74% during the month.1  

Demand from CLO investors remained strong with three CLOs pricing in the month. The S&P Leveraged Commentary & Data’s (LCD) forward CLO volume stands at €6.7 billion across 19 deals, its highest in approximately 6 months. Therefore, we anticipate the new issue pipeline of currently €6.0 billion to be met by good demand in the near-term. 

The CS WELLI’s nominal value (size of the market) at the end of the month was €314 billion, a 1.2% increase year-to-date1

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^1 Credit Suisse Western European Leveraged Loan Index (CS WELLI) in EUR as of Jan. 31, 2019.
^2 STOXX Europe 600 Index in EUR as of Jan. 31, 2020. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region.
^3 CSI 300 Index as of Jan. 31, 2020. The CSI 300 is a capitalization-weighted stock market index designed to replicate the performance of top 300 stocks traded in the Shanghai and Shenzhen stock exchanges. 
^4 S&P Leveraged Commentary & Data (LCD) as of Jan. 31, 2020.