January has been a stellar month for investment grade corporate bond issuers in euros but it is quite possible that those that have waited to print have missed out.
For the most part, books are big and NIPs are small. So far, benchmark deals have been on average 3.7 times covered, while pricing 0.7bp through fair value, data from GlobalCapital’s Primary Market Monitor shows.
However, it looks like the early birds have already caught the worm, leaving those that chose to wait perhaps scrambling for scraps in the dirt.
Despite geopolitical volatility, early January’s cracking conditions remain, with deals later this week still achieving strong outcomes.
However, market sentiment can sour at short notice, leaving issuers with slimmer books and dearer concessions — and the possibility of much wider spreads.
This week for instance, new issue premiums leapt up after US president Donald Trump threatened a raft of European allies with tariffs if they did not acquiesce to his plans for Greenland.
A low new issue premium flat to, or even through, outstanding curves is not a certainty. It is natural to assume that as volatility rises, so too do NIPs as investors’ eagerness to take on extra risk wanes.
Tuesday’s borrowers needed, on average, 4bp of concession to get across the line — a sharp rise from the negative 3.3bp needed last week.
However, despite higher premiums becoming a necessity, underlying spreads barely budged. In the run up to Tuesday’s BMW triple trancher, the lead managers spotted only marginal movement in the firm’s secondary curves, much of which came not from selling but from trading desks remarking their positions.
Of course, diminutive spread moves in response to augmentative volatility are unusual. For now, the primary market is buoyed by the ample liquidity sloshing around in the hands of investors. But when these wells dry up, spreads can easily gap out.
Recent history has shown that when spreads blow out, they really blow out.
Just under 10 months ago, Trump sent shockwaves through the market with his so-called "liberation day" tariffs, propelling spreads immediately upwards. The iTraxx Europe main CDS index, for instance, did not return to its pre-April levels for over five weeks.
Corporate bond spreads are exceptionally tight across asset classes and sectors. But do not expect these conditions to stick is sentiment heads south.
A dilemma is rising for issuers: go now and pay a higher NIP or wait for tighter concessions but risk wider spreads.