DM IG Credit - Buyer beware

August, a traditionally quiet time for global markets has seen pockets of single name volatility in what are large cap names.

Large-cap IG rated issuers that have seen their bonds widen materially are set out below:-

	Widening
Provident Financial	>1000bps
Carrefour	20bps
WPP	15bps
Prosieben	30bps

The common factor in all the names above (barring PFG) is a structural change in industries that may have gone largely unchecked by senior company management. I.e:

• With Carrefour the increasing prevalence of online ordering via Amazon or other food retailers, and its impact of bricks and mortar stores.
• With WPP / Prosieben and the likes of ITV, who are seeing declines in their advertising budgets from traditional media such as TV, as more people switch on to streaming platforms such as Netflix and Amazon Prime Video 

All of these names besides Provident are currently or have previously been included in Corporate Bond buying programs from the BoE or the ECB. As such their credit spreads, prior to their respective warnings had been artificially compressed by QE. 

This lesson highlights the importance of fundamental credit work prior to bond selection rather than just trying to ride the coat-tails of Central Bank buying. As the Central Banks begin to unwide, you could see a double effect on credit spreads, i.e when the natural supply of IG rated bonds available to investors increases and the impact of profit warnings on Issuers within those programs.

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