Markit has published the inaugural edition of the Global fixed income focus. The publication includes a monthly market update and special reports that leverage the breadth and depth of Markit's pricing and analytical datasets across the various fixed income markets.

The global fixed income markets failed to get any respite in September after the summer's unusual levels of volatility, driven by the Greek crisis at the beginning of the summer and the more significant surprise devaluation of the yuan by China in early August. The negative economic reports out of China and extreme swings in the Shanghai Composite Index led to renewed concerns over the country's financial slowdown having a direct impact on global economic growth and equity market stability. Fixed income markets were lower across the board in September but still outperformed equities. The September FOMC meeting was the primary focus of the fixed income markets for most of the month, with the decision to not raise rates triggering an atypical rally in both equities and bonds, which quickly dissipated over the following week as the market began to view the Fed's inaction as an indication of its concerns over US economic growth.

• 24% of global CDS reached new two-year wides in September, largely driven by concerns out of China and the Fed's rate inaction at the September meeting. We explore specific time periods during the financial crisis when clusters of CDS reached new wide levels due to one or more significant monthly events.
• The Markit iBoxx USD Leveraged Loan index (MiLLi) returned -0.76% in September, but still outperformed the iBoxx $ Liquid High Yield index by more than 200bps on the month and 473bps year-to-date (see Table 8: September corporate bond US and European iBoxx indices performance). The data indicates that loan prices in the media sector have not yet shown the same degree of weakness as CDS spreads for that same sector.
• Oil continued to decline sharply on the heels of anticipated lower Chinese demand for all commodities, with CDS and loan spreads in the energy sector being wider this month, but remaining close to the middle of their one year ranges.
• Municipal bond spread data indicates that spreads to treasuries for select 5yr state general obligation bonds generally had a negative correlation to most single A-rated CDS spread curves.
• Credit Risk Transfer (CRT) bonds continue to be the most widely quoted two-way market among all credit securitised products, but dealer activity appears to be waning. We analysed trends in two-way dealer round lot markets on CRT bonds and found that M2 activity peaked in May and has tapered off sharply since then. We also examined the trends in two-way market volumes and bid/ask spreads during the very volatile months of August and September.

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Chris Fenske, Director, Head of Fixed Income Pricing Research
Tel: +1 212 205 7142
chris.fenske@markit.com

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.