December proved to be an eventful month as the Federal Reserve raised interest rates for the first time since 2006, ending a zero rate policy that started exactly seven years ago to the day. The month started on a negative tone when the European Central Bank disappointed the market when it failed to meet inflated expectations of a more significant monetary stimulus. Continued weakness in oil and commodity prices also weighed in on fixed income markets.

Here are the highlights from this month's publication:

• In a new Liquidity section, we analysed trends in dealer offering and bid wanted in competition (BWIC) quote volumes to assess changes in liquidity for various securitised products over the course of 2015. Figure 1 shows the average relative BWIC activity across CLO, CMBS, and non-agency MBS based on the weekly number of unique bonds on BWICs and normalised based on relative sector activity levels.
• The leveraged loan market continued its slide, with the Markit iBoxx USD Leveraged Loan index (MiLLi) declining 1.02% during the month, to end the year at -1.04%. 2015 is only the second time since 1992 that the US leveraged loan market finished in negative territory, with 2008 being the other time.
• Global CDS were wider across the credit spectrum, with global CCC cohorts reaching their widest levels of 2015. AAA North American CDS reached their widest level of the year, while most North American and European CDS above CCC remained below their worst levels of 2015 reported in September.
• US high yield (HY) bonds drove the majority of risk sentiment during the month, as bond returns suffered one of their worst months of 2015. Both $ HY, as represented by the Markit iBoxx $ Liquid High Yield index, and Euro HY suffered losses of -2.3% and -2.5%, respectively.
• French sovereign CDS were the best performer in the G7 and globally, on a spread percentage basis, as they tightened 1.7bps (-6.2%) to close the month at 25.8bps. German CDS reached its tightest levels of the year, with a spread of 12.6bps during the month.
• December capped off a phenomenal year for the municipal bond market versus most other markets, where it appeared to completely shun the global macro-economic distress that plagued the broader equity and bond sectors. Puerto Rico Commonwealth honoured it's most senior GO debt by making its January debt service payments in full, but Puerto Rico's infrastructure finance authority (PRIFA) missed its January 1st debt payment.
• The 'January effect' that has consistently led to rallies across securitised products in the past has apparently skipped this January, as liquidity did improve after the holidays, but the entire sector has been unable to overcome the headwinds from the record sell-off in global equity markets that began on the first trading day of 2016

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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.