The mood brightened in the bond markets this week as the volatility of the past couple of months eased after a strong rally and market participants enjoyed a steady flow of new issuance in the US and Europe.
Germany launched a record-breaking $5bn five year deal — its first foreign currency bond issue for over 50 years.
The bond is the largest in a single tranche from a sovereign, supranational or agency, besides the US mortgage agencies, and at 12bp over Treasuries was as tightly priced as any other deal in recent history.
Price guidance in the mid-teens attracted more than $14bn of orders.
The UK government launched its longest dated issue for 40 years — the £2.5bn 4.25% 50 year Gilt found solid demand, although many observers expected a larger appetite for the triple-A securities.
The next issuance window is now focused on the middle of next week as the US and UK are on holiday on Monday and the US non-farm payroll numbers are released on Friday.
The US high grade corporate bond market staged a spectacular recovery this week as it said goodbye to General Motors and GMAC.
Within minutes of news that Fitch Ratings had followed Standard & Poor's and downgraded GM and GMAC to junk, investors jumped into the market to buy bonds in the secondary and new issue markets.
Auto spreads tightened as much as 73bp this week as the feared forced selling of GM and Ford bonds did not take place.
In Europe Baa3/BBB- rated Manpower brought a generously priced Eu300m seven year with a change of control covenant, although the consensus is that a new issue premium is sufficient to entice investors to play in new issues.
The next company scheduled to come to the euro market will be a real test of sentiment — sugar producer Südzucker International Finance is set to roadshow a subordinated hybrid capital transaction through Deutsche Bank the week after next.
The borrower is looking for Eu500m and the deal will be a callable perpetual offering with a step-up coupon. The bond will be rated Baa2/BBB-.
Japan's UFJ Bank became the first financial institution to defer payment on a capital security placed with institutional investors after announcing it would not pay the June 30 dividend on a tier one security.
But despite the surprise with which the news was met globally, the bond markets appeared willing to isolate the incident and borrowers in Europe and the US such as Aegon, Deutsche Postbank and Euroclear Bank were able to launch tier one deals at healthy oversubscriptions.
Italian telecoms company Wind is considering launching a Eu1.7bn high yield bond, which would be the largest ever euro denominated financing.
