Borrowers returned in force to Europe’s high grade benchmark bond market in 2024, but an 11% rise in issuance volumes year on year did nothing to widen spreads, according to GlobalCapital’s Primary Market Monitor.
Investment grade corporate borrowers sold €311bn of benchmark sized trades in 2024 up to November 11. This was up from the €280bn sold in all of 2023. At the same time, the average deal size was roughly the same — €680m this year compared with €675m in 2023.
Despite the higher volume — and this volume is tipped to increase again next year as a wall of redemptions hit the market — borrowers paid a fraction of the new issue premium they had to stump up in the previous 12 months.
In 2023, the average new issue concession in euros across the entire year was 14bp, GlobalCapital data shows. In 2024, this number was 5bp.
Average premium on euro benchmark IG corporate deals by quarter
Source: GlobalCapital’s Primary Market Monitor
Meanwhile, the iTraxx Europe Main tightened by 20bp from December 2023 to November 2024, and the Crossover tightened by 115bp in the same period. At the start of 2024, investors, bankers and borrowers alike were unusually unanimous in their belief that spreads would widen this year.
Instead they tightened — even during a year where there were many important elections globally, including a snap parliamentary election in France and the US presidential election in November, which saw former president Donald Trump return to the top job.
This tightening was mostly down to the relentless cash inflows into corporate credit this year. Until October, only three weeks of the year had seen net outflows, at less than €1.5bn each. Every other week was one of net inflows, meaning there was far more demand than supply in corporate credit.
Sterling a laggard
The market did not grow equally everywhere. Bonds in euros did all the heavy lifting, with Primary Market Monitor data showing that sterling issuance was all but flat year on year at £23bn.
The sterling market is often seen as mostly domestic and arbitrage driven, which keeps volumes there low, even for UK companies.
“Rates are higher in sterling than in the US and euros, so UK corporates will have less incentive to issue in sterling and keep it fixed rate,” says Frederic Zorzi, global head of primary markets at BNP Paribas.
“If the arbitrage is, for example, 10bp-20bp, then it can be worth it for issuers to consider sterling,” he adds, “but if it falls to less than 10bp, then it is not as acceptable. Some more frequent issuers, who value investor diversification, might find low to no arbitrage acceptable, but a corporate issuing once a year will be less flexible.”
Maturities in euros lengthened in 2024 year on year, with the average tenor on a trade at 8.47 years, compared with 7.29 years in 2023.
Much of this can be attributed to the popularity of long dated bonds at the start of 2024 as investors looked to lock in higher yields before central banks began cutting interest rates. Borrowers such as Medtronic, Merck, BT and Bayer headed out to 29 years plus in euros, while there were 18 tranches with a maturity of at least 20 years, Primary Market Monitor data shows.