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People and MarketsCommentLeader

January’s bright primary market won’t last


Big books, skimpy concessions and large deal sizes will soon face the reality of a shaky global economy

It has been a rip-roaring start to 2023 across a number of asset classes in the primary bond market but issuers must realise that the flood of new year money from investors is doing a lot to mask the underlying problems that remain from last year.

The FIG market came tearing out of the gates with 10 senior tranches on screens on Tuesday and three riskier additional tier one trades across the week drumming up combined books of €10bn.

High grade companies took a little longer to get going, but what would have been tough deals in 2022 met a roaring reception. Engie’s 20 year bond of a three tranche deal was the heavy favourite among investors, and on Thursday E.On’s 12 year green bond drew an eye-popping €4.8bn of orders pre-reconciliation.

Even emerging markets were getting in on the act, with Mexico selling $4bn on the first trading day of the year from an $18bn book, while there were also deals for Slovenia, Hungary and Romania.

That’s a great start. Some in the FIG market were already talking about investor indigestion just a few days into the year. But the problems that plagued markets last year have not been solved.

Russia’s war in Ukraine rages on, energy costs remain elevated, and China’s exit from its zero Covid policy threatens a fresh variant globally and another major disruption to supply chains.

There are some causes for optimism — inflation is slowing, down to 9.6% for December from 11.3% a month earlier in Germany.

But the ECB, along with other central banks, still has its work cut out to bring that number down to its 2% target.

Central bank bond buying programmes, through financial crises and a pandemic, proved something beyond all doubt — throwing enough money at the market can gloss over all sorts of fundamental problems bubbling beneath the surface.

But fresh pools of investor cash — always higher in January — cannot match the balance sheets of central banks and work to different rules; they are deployed to avoid crises, not solve or paper over them.

As rosy as the primary market picture may be this week, the tone will worsen as more cash is deployed. Expect last year’s gloomy tone to return within weeks.