The sun continues to shine on corporate bond sellers in January, with lower rated issuers the most active in the primary market this week. Triple-B companies printed eight of the 10 euro deals that investors had taken down by Thursday and cross-over names have also joined the euro bond party.
“The market is still straightforward and conditions are so good that everyone is trying to find excuses to be opportunistic,” said one head of syndicate in London. “Who knows what happens later in the year, so why not take something out of the market now?”
Despite many accounts showing continued coolness on duration risk, corporates such as Italgas, Imerys, Eni and Telefónica all sold bonds dated to 10 years and beyond this week.
Some, such as Gas Natural, even pulled in hefty order books. But few market participants seem to think that triple-B access to the long end will persist if rates market uncertainty continues (see page 2 of section).
“Issuers look like they are trying to lock in low coupons while they can,” said one hedge fund manager in London. “They are all coming to market at the same time and the consensus is that rates will go wider not tighter.”
For now though, life is sweet for corporates. Not only did triple-B credits demonstrate their access to the long end this week, but cross-over names such as Jaguar and Cellnex pulled in big orders from investment grade and high yield accounts for their deals (see page 5 of section).
“Crossover names are the sweet spot,” said a banker on the Cellnex deal. “Yields on highly rated paper are very low and the real high yield stuff is a bit iffier, given European fundamentals are not that strong, so crossover provides the best of both worlds.”
“The question is how long is this good market going to last,” he added. “One to three days more of this activity and maybe get we will start to see indigestion.”
Syndicate desks not in vogue
A noticeable number of investors are voicing their discomfort with the market’s pace, their principal gripe being the aggression of price revision on primary deals. Syndicate bankers point out that order books are still firm enough to justify deep price cuts, but that is unlikely to save them from grumpy phone conversations.
“We are hearing of more and more clients complaining to syndicate and sales about secondary performance and aggressive primary tightening,” said one fund manager in London. “Syndicate is not in vogue at the moment. We are seeing massive jumps in pricing and it ticks people off. You spend time looking at a deal and then syndicate try to bring it in by 20bp-30bp.”
“It’s nearing the end of peoples’ tether in allowing syndicate to do this,” he added. “More investors are getting annoyed by it but syndicate push and push and the deal still gets done. Because it looks good it carries on, until you get indigestion.”