Companies looking to issue bonds are going to have to be more nimble than ever as they navigate greater volatility as interest rates rise. But in Europe, there is little sign so far that they are stepping up to the challenge.
December offered an opportunity to get ahead of rate rises by pre-funding capital requirements for this year or opportunistically managing liabilities. Despite having reached the last page of their calendars, investors were at their desks and ready to buy, not least because a mammoth issuer of the past, General Electric, had just redeemed a stack of bonds.
And the volatility that had plagued the market in November had led some funding projects to be put on hold, meaning there was pent-up supply ready to meet the demand.
The result was that in the US, the investment grade corporate bond market broke a December issuance record, with North American high grade companies, excluding financials, issuing more than $30bn in dollars during the month, according to Dealogic. Adding issuers from other regions, the total raised in dollars came to almost $50bn spread across 48 tranches.
The euro bond market, in contrast, remained eerily quiet, with just €4.4bn ($4.9bn) coming to the market across 11 deals. Of that amount, €1.5bn was a dual tranche offering from a Japanese company, Nippon Telegraph and Telephone Corp.
Where were the European companies? Decorating their Christmas trees?
After the holidays, the picture was very much the same. Conditions were as good as in December, if not better, as investors had fresh budgets and markets were wide open.
By the end of the first week of the year, North American non-financial companies had issued $9.5bn across seven tranches in dollars, with issuers from other regions bringing the total in the US currency to almost $18bn.
Issuance in euros was less than a quarter of that, at a shade under €3.5bn ($4bn) from four issuers, one of which was American (Digital Realty Trust) and another an Australian subsidiary of a Japanese company (Toyota Finance Australia).
Admittedly, there were only really two days available for issuance in Europe last week, what with a public holiday in the UK on the Monday, Epiphany being celebrated in Europe on Thursday and a quiet day to digest non-farm payroll on Friday.
But it was enough of a window for Digital Realty and Toyota. The Europeans were almost entirely absent.
Bankers say there are quite a few differences between corporate treasuries in Europe and their counterparts in the US. The US companies tend to care more about the overall fixed income coupon and less about the spread. They pay less attention to new issue premiums. They even complain less about fees.
Perhaps worrying less about these details allows them to attack the market quickly when they see an opportunity. If so, maybe it is an approach the Europeans can learn from.
“We're going to see volatility and probably more short windows to access the market compared to what we have seen over the past couple of years,” said a syndicate banker this week, looking ahead to the tapering of quantitative easing in the eurozone. Meanwhile, the deal pipeline is already filling up for a busy year, meaning issuers will have to cope with plenty of competing supply.
Are European companies ready? The evidence of the past month and a half is less than convincing.
