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A golden opportunity awaits corporates


Oil major BP printed its debut hybrids this week, defending its balance sheet from the huge slump in oil prices and the ravages of global lockdown. The company lured €20bn of orders a day after writing off up to $17.5bn of assets, proving that if you’re a company with something unusual to bring to capital markets, now is the time to do it.

The US Federal Reserve fired up markets this week with the latest monetary policy prop, announcing it would buy individual corporate bonds.

From seeking emergency funding, issuers are once more beset by investors clamouring for yield as spreads raced back in. Hybrid and long-dated conventional bonds have seen plenty of demand in recent weeks as a result.

But the economies these borrowers operate in are doing far less well than markets suggest. Investors know this and also that the next round of results, due next month, will be brutal for many companies.

But they don’t care.

As long as central banks keep doing whatever it takes to keep borrowing costs down, investors must dance to their tune.

Borrowers need to take advantage of this. If a company whose one big product faces as bleak a future as BP’s — low prices now and a transition away from it in the long run — can set up a meaningful hybrid curve so cheaply, then other borrowers must consider doing the same. Borrowing at ultra-long maturities is another good option.

The central bank triage of its corporate patients has fended off the economic worst of what the pandemic has threatened for now. But it would be foolish to think that Covid-19 and the financial woes it brings are cured.

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