APAC Cross Regional Credit Weekly: Spread stabilized amid an improving backdrop

The backdrop has improved modestly as some tail risks begin to fade. JULI spreads widened only 1bp w/w to 104bp, and HG yields fell 5bp to 6.08%. HG fund inflows rose to US$4.4bn this week (+2.9x w/w), still modestly below the four-week average of US$4.7bn, driven by ETF inflows of US$7.5bn (+68% w/w) while mutual fund outflows edged up to US$3.1bn. Gross issuance of US$59bn was priced last week versus US$18bn of maturities and coupon income. October gross issuance was US$125bn, 17% above the past four-year average, and YTD issuance reached US$1.82tr, up 24% YoY and 91% of the US$2.0tr full-year forecast. European IG and HY spreads tightened 2bp and widened 12bp to 116bp and 396bp respectively. Heavy issuance and midterm elections could add near-term choppiness to HG spreads, but earnings growth remains strong and lower odds of a December hike should help fund flows flip back to inflows.