The eurozone’s corporate debt market has gingerly reopened after a one-month hiatus in August as KPN, the Dutch telecoms company, RCI Banque and BAA, the airports operator, all sold euro-denominated bonds on Thursday.
The euro bond sales came after the US market registered strong issuance this week, and as a benchmark index for European corporate debt stress fell for a second day on Thursday, nurturing hopes that bond investors would be receptive to stronger European companies.
Nonetheless, bankers expect the healthier US corporate bond market to lure larger European companies that need to issue sizeable bonds. They have predicted an upsurge in so-called Yankee bonds, or US-dollar denominated bonds sold by non-US companies.
“Hand on heart, can we give big European companies the same execution guarantees in euros as in dollars? Probably not,” said a senior London-based syndicate banker. “The theme of European companies going to the US market is going to continue.”
The US corporate bond market has stayed resilient in spite of the wave of risk aversion that has shaken credit markets, junk bonds and equities.
Spreads to Treasuries on US investment grade corporate bonds have increased but underlying benchmark rates are so low that borrowing costs for these issuers remain historically low. Currency swap rates are also attractive.
In spite of the return of Europe-based deals – Scottish and Southern Energy sold the first sterling bond in over a month on Wednesday – more companies are expected to follow Daimler and France Telecom, who were among the issuers tapping the US corporate bond market on Wednesday, for more than $11bn, the largest daily issuance since May, according to Dealogic.
On Thursday, US-marketed deals were expected from companies including Toyota Motor Credit and AIG, bankers said.
Barclays Capital estimates September issuance of $75bn or more, depending on the level of US Treasuries. Jim Glascott, head of global debt capital markets at Barclays Capital, said corporate treasurers were taking advantage of the low borrowing rates now available.
“We have seen many clients ‘prefund’ needs for later this year and into first half 2012,” Mr Glascott said. “Most treasurers are looking to lock in rates.”
New US issuance was, however, coming at a premium to existing debt, of around 20 bps so far this week.
In recent weeks, average spreads on US investment grade bonds have risen above 200 bps for the first time since 2009, but yields are still under 4 per cent, according to a Barclays Capital index. Yields, which move inversely to prices, hit a low of 3.36 per cent on August 4 and were 3.61 per cent at Wednesday’s close.
Markit’s Europe main index of credit default swaps on investment grade corporate debt fell for a second day on Thursday, to a still elevated 173 basis points. In May the index was trading below 100 bps.
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