Turbulence hits hard in investment grade corporate bonds

Market insight

Katana Labs
March 30, 2020

In the turbulence of the past days in the investment grade european corporate bonds universe, the biggest credit spread dislocations that our algorithm has detected are in:

  • Carnival Corporation: The US stimulus package includes only U.S.-incorporated companies with a majority of workers based in the U.S. This criteria has hugely impacted, among others, the world's largest cruise line operator Carnival. We see that their bond with maturity date 2022 will seriously decrease in price (CCL 22)

  • The relative spread of Carnival vs Booking Holding, widening from an average of 56bps over the last year to 1,418bps.

  • FCE Bank plc: the bank faces a rating downgrade from Moody’s: we see the bonds with maturity 2021-2024 have seriously decreased in prices.

  • We compare FCE Bank, the financing arm of Ford, with FCA Bank, the JV by Fiat Chrysler Automobiles and Credit Agricole, where the spread difference has gone from an average of 82bps to over 1,015bps.

Our model is able to compare all pairs of bonds in a given universe and quickly identify mispricings. When a bond occurs in many pairs it is a clear indication that it is abnormally cheap (or expensive) relative to multiple similar bonds, and so a signal of a possible idiosyncratic event.