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2020/09/24 / Erste Group Research

Rising infection rates burdening sentiment

The rising number of new COVID-19 infections was unsettling investors at the beginning of the week. Both corporate high-yield and hybrid markets saw widening spreads. While it is too soon to expect a sustainable trend in these market segments, autumn has begun volatile. There is a lot to suggest that it will stay that way (e.g. Brexit, US elections).

In the (non-financial) investment grade segment, the ratio of hybrid to senior spreads has increased to its long-term average in the past weeks. The high issue volume seems to contribute to that situation: given the generally low interest rates, hybrid bonds have become a popular instrument to strengthen the equity capital on the balance sheet and to protect one’s rating (N.B. rating agencies tend to regard 50% of any hybrid issue as equity). The instrument should remain attractive for issuers and investors.

The purchasing managers’ index for the Eurozone published yesterday was down in September. While the sentiment in the industrial sector exceeded expectations, the service component fell more decisively than anticipated by the consensus and below the level that suggested growth. The data did not disappoint the market though: crossover CDS index spreads tightened slightly.

Special topics of the week:
- Issuer in focus: Oberösterreichische Landesbank AG

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General information

AuthorErste Group Research
Product nameCredit News
Topic in focusCredits/ Corporate bonds
Economy in focusAustria, Eurozone
Currency in focusEuro
Sector in focus-


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