Credit copes with mixed earnings

A mixed day for corporate results couldn't prevent credit spreads continuing their inexorable move tighter on Thursday.

Unilever's sales figures disappointed investors, with the 4.9% growth figure coming in below expectations. This followed lacklustre earnings recently from two other bellwether consumer staple firms, Nestle and Diageo. French food group Danone was the exception when it beat expectations last week.

However, the below-par results didn't cause spreads to widen. On the contrary, Diageo has tightened along with Danone, and both Unilever and Nestle have been steady at 30bps. The muted reaction isn't particularly surprising. The consumer staples sector is a defensive, low-beta grouping that rarely sees large oscillations.

All four companies have solid investment grade credit profiles, but Nestle and Unilever trade considerably tighter than the other two firms. Nestle is renowned as one of the strongest names in the credit universe and is a strong 'AA' company, while Unilever is rated single 'A', but trades with an implied rating of 'AA', according to Markit data.

The latter firm has very low leverage for a single 'A' credit. Both Diageo and Danone trade in line with their single 'A' ratings.

Elsewhere, Astrazeneca and Banco Santander were among several companies to miss expectations. Nonetheless, the Markit iTraxx Europe index continued to rally, tightening by 0.5bps to 105.75bps. Central bank liquidity is still driving funds into risk assets and pushing concerns about fundamentals to one side.

In the US, the Markit CDX.NA.IG index was 1.5bps tighter at 78.5bps, its tightest level for over a month. Verizon Communications bucked the trend amid fresh speculation over a bid for the stake in Verizon Wireless that it doesn't already own. The telecoms group was 8bps wider at 78bps.

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