Europe’s high grade corporate bond specialists have been complaining for weeks that they lack a clear roadmap for how to do deals and how market conditions are likely to shape up in the coming weeks. But the latest spate of deals make it clear: the end of the year will be difficult for borrowers.
Interest rate rises, the US budget deficit, looming recessions and horrific wars in Ukraine and Gaza have given many in the corporate bond market whiplash as they try to decipher the best way to approach the market, on both the borrower and investor sides.
The latest surge in sovereign yields, which pushed the 10 year US Treasury up through 5% for the first time since 2007, has prompted some investors to say they do not expect any more corporate bond issuance at all for the rest of the year.
But at the market open on Tuesday, Spain’s FCC Servicios Medio Ambiente Holding opened books on a six year green bond. It garnered enough demand that the issuer increased it from €500m to €600m.
However, the deal does not contradict the sense that the market is gripped by malaise and fear. Rather, it strengthens the reality established by H&M’s €500m eight year debut green bond last week.
H&M tightened its deal by 15bp during bookbuilding. In a regular market, that would be unremarkable or even poor, but the relentless macro volatility means this is not a regular market — so 15bp of tightening was a good result.
H&M and FCC Medio Ambiente are rare issuers. Last week’s bond was H&M’s second ever. That rarity prompted both borrowers to hold extensive roadshows to sell their stories. Both came away with successful trades.
Compare that with two recent one-day sales: by Acciona Energia in euros and, to a lesser extent, Toyota Motor Credit Corp in sterling last week.
Neither issuer was able to budge from initial price thoughts, and Acciona’s book fell €25m short of its €500m deal size.
There are always many dynamics at play in any deal. But for the last week, investors have pointed to Acciona Energia’s and Toyota’s intraday approaches as sticking points.
Put simply, markets are so choppy that investors need a run-up before they will part with their money.
This should inform issuance tactics for the rest of the year: there will be a clear preference for roadshows. However, there are not many days left in which to make deals — fewer still, if a company plans to hold a roadshow. That heaps more pressure on those who want to come to the market.
The start of November is tipped to bring a bit of a splurge after the third quarter earnings blackout ends.
But borrowers should remember: investors are checking the screens for macro updates just as nervously as they are.