What to Watch in European Credit Markets This Week

(Bloomberg) -- Good morning. Here’s what we’re watching this week:

Closed for Christmas

The primary market -- probably the easiest way that investors can get their hands on corporate bonds -- has shut up shop. That’s no surprise: it’s the end of the year and investors have been asking for such hefty premiums it was repricing lots of other debt. Looking into 2019 it’s not obvious that conditions are going to change. One syndicate manager says borrowers must accept that spreads are “not returning to early 2018 levels”.

M&A bonanza

Credit desks might be having some downtime but investment bankers are seeing the fruits of their labors, with a string of acquisitions being announced in recent days. Today’s big one: Hitachi Ltd’s purchase of ABB Ltd’s power grid division. On Friday, LVMH said it would buy hotel group Belmond Ltd for $2.6 billion. Analysts at CreditSights Inc said LVMH may consider selling bonds for its acquisition, and to refinance maturing debt. Meanwhile, CVC Capital Partners has offered almost $2 billion to buy out Swedish building-products supplier Ahlsell AB.

Event risk rolls on

It’s unlikely to be a very relaxing Christmas for European leaders. French Prime Minister Emmanuel Macron continues to grapple with the so-called Yellow Vest protests that threaten to derail the country’s economy. U.K. Prime Minister Theresa May is still rebuffing the idea of a second Brexit referendum as well as trying to avoid crashing out of the European Union without a withdrawal deal. Meanwhile, Italian leader Giuseppe Conte may have averted a crisis by forging a deal with populist leaders to submit a revised budget proposal which could be accepted by the European Commission. Either way, event risk seems set to continue until well after Christmas.

Bonfire of the retailers

It’s been rocky start to the festive season for U.K. retailers. First, Mike Ashley, founder of Sports Direct International Plc, said last week that November had been “unbelievably bad” for store chains. Then today Asos Plc issued a profit warning, cutting its full-year sales growth outlook by 10 percentage points. Its shares fell as much as 40 percent. If Asos is smarting, you can be sure investors exposed to bonds of other retailers, notably New Look Retail Group Ltd and Debenhams Plc, are bracing themselves for a testing Christmas.

To contact the reporter on this story: Emma Haslett in London at ehaslett@bloomberg.net

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Tom Freke

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