European SF & CB Weekly Week of 18th August 2014: High-beta outperforming

BofA Merrill Lynch Global Research - Martes, 26 de Agosto

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Another week brought us one step closer to closing the gap created by early-August widening in European credit markets. Both the Main and the Crossover have almost recovered the lost ground. European SF markets are following in tone, if not in actual levels, due to low trading volumes. When the sell-off took place, investors followed the now-usual practice of offloading more liquid names that would be easier to replace if/when necessary. Now that the markets are retracing, it is these sub-sectors that are benefitting the most: UK near-prime (Granite), UK BTL (Aire Valley) and UK NCF, as well as high-beta periphery. This is not to say the risk appetite has returned in-force: investors remain somewhat cautious, looking to buy stronger credit on weakness, where the levels lagged the overall retracement, eg senior NCF RMBS which widened the most in early-August (as opposed to NCF mezz that moved little). In the periphery, government bonds tightened by c.5bp on the week for Italy and Spain (Italian-Spanish 3-5Y indices) and by 22bp for Portugal. This has played into better tone in the peripheral SF market as well, with Portuguese RMBS outperforming the rest, in line with the sovereign bonds dynamics. Similarly, € peripheral covered bonds continue to outperform core markets especially in the 1-7 year maturities, and, as we discuss later in this report, and relative value improved for covered bonds versus sovereigns.
 

RMBS: Selected Spanish RMBS (TdA) update 

SME: Spanish SME CLO performance 

Covered Bonds: Covered Bonds = attractive following sovereign rally  

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