Have euro corporates got the long shot in the bag?
At various points over the last five years, and even before that, those in euro corporate bonds have grown excited about the establishment of the long dated market. However, the 20 year to 30 year area of the curve has been the least predictable and most difficult thing to hit — the one iron in the market’s golf bag.
Every so often the long tenor was pulled out, an issuer lined up their shot at the market and nailed it. Not always straight down the middle, but certainly a good hit in the right direction. And like anything new and successful, in markets or in golf, there has been a rush to replicate it.
However, the longer end of the euro curve for corporates has been as fickle as the one iron. The next shot sometimes hasn’t even made it off the ground, and issuers have scurried back to the safety of 10 year or 12 year bonds, or sometimes even the reliability of a seven year. Two shots with a five iron are better than a bad thwack with the long iron in trying to get out of the rough.
Daimler this week became the latest issuer to tee up a 20 year tranche, booming out a €1.3bn monster. But it is both the frequency of recent issuance and the size of the tranches achieved that is providing renewed hope that this time borrowers and their banker caddies may have mastered the trickiest of tools.
GE issued a $2bn 20 year in May. A month later AT&T’s 19.5 year tranche grew to €1.75bn. Last week CTE printed a €1.22bn 15 year and Gecina only had need for €500m in the same tenor this week, but the order book was €1.8bn.
Maybe there is some false assistance being given by the European Central Bank's quantitative easing, but then again perhaps practice has made perfect and that long club will be staying in the bag.