At first glance, markets looked in better than expected shape in January, with multiple positive signs throughout the month. Emerging market spreads were tighter over the month despite the new US administration taking office and prior fears of EM capital flight. Major financings for Petrobras and Argentina along with multiple other sovereigns were accompanied by a healthy and growing range of Latin American corporate borrowers together with Chinese corporate supply. European supply saw heavy oversubscription for sovereign benchmark deals for Spain, Belgium and Italy throughout the month. Markets also absorbed the start of what is expected to be very sizeable banking sector supply to meet TLAC and MREL requirements for instruments which can be bailed in, without financial sector spreads showing signs of significant adjustment.

On the negative side, the latest data available shows that foreign holdings of US Treasury bonds have declined from $6.28trn at end-June 2016 to $5.94trn as of end-November 2016. Italian 10-year bond yields had surged to a recent high yield of 2.24% on January 26, following the partial blockage of its new electoral law, which potentially increases risks of political instability, and a lack of stable government. Mozambique has defaulted on its already restructured international debt, with little indication it will be able to make payment until it reached a deal with the IMF. Mexico faces growing issues in its relations with the US: dislocations to NAFTA would be likely to hurt its economy and could lead to significant underperformance in its debt.

• Beginning this month we will be including a section dedicated to analyzing trends across the Markit iBoxx family of indices. From February 2016 to January 2017 almost $16bn in new ETF assets was benchmarked to Markit indices.
• In the leveraged loans sector, European telecom spreads tightened the most across the entire credit curve in January after being the worst performer the prior month. There were 12 consumer goods or services companies globally, across the par and distressed categories, which were among the worst performers during the month.
• The Markit iTraxx Europe started the year at 72bps and quickly rallied to 67bps. Since then the index has gradually given up the gains and traded around 70bps for most of January.
• The negative impact of the selloff in European rates and uncertainty pertaining to upcoming elections became very apparent in the credit markets in January, as most euro and sterling corporate bond sectors ended the month lower on a total return basis
• The combination of concerns over the Italian banking system and uncertainty of the upcoming French elections resulted in the two countries taking the top spot on the month's sovereign CDS worst performers list. On a percentage basis, France underperformed Italy slightly, with their CDS spreads ending the month 8.4% (+3bps) and 8.2% (+13bps) wider, respectively.
• The yield basis between 10yr and 30yr AAA municipal bonds ended the month at 76bps, which is only 5bps from the tightest basis of 71bps reported on November 29

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