Of course it was Nestlé in the midst of the scrum — always the European corporate market's first among equals. It was lifted by being Swiss and chocolatey, and into an echelon different even from aristocrats like Shell or Total SA.
Not all traders agree that Nestlé's 2016 euro bonds are actually being bought at a sub-zero yield.
But whether they are or not, it is quite clear that this is the way the market is heading. More short-dated corporate bonds are set to follow sovereigns to zero or negative yields.
Investors wanting to put cash in a safe place who still want any yield at all are crowding together on an ever smaller island of assets, and the tide is rushing in.
How on earth pension funds and insurance companies are going to meet their yield targets in these conditions is anybody’s guess. Investment mandates mean they can’t just pile into higher risk bonds or equities. If there was a mattress big enough, they’d be better off putting it under that.
Issuers, meanwhile, have been taking the opportunity to push their yield curves out as far as they like. That at least offers investors a glimmer of return, but there’s a limit to how far any borrower will go in this direction, and for some, that limit is not very far. Nestlé’s longest-dated euro bond matures in 2022.
With journalists and analysts running out of superlatives to describe the funding conditions, bankers are looking forward to a herd of issuers stampeding into the market when they come out of blackouts.
But the fundamental problem with the European economy is not a lack of free credit for German and Swiss multinationals, it’s a lack of growth.
And if there’s no confidence in growth, finance is already dirt cheap and as long-dated as you like, and there is no prospect of interest rates rising any time soon, there’s not really much hurry to borrow more, either. That stampede could turn out to be more of a saunter.
