“With the trajectory of rates, it’s hard to argue against it,” one corporate syndicate bond banker said of the prospect of more negative yielding corporate debt supply.
As evidence, he pointed to the fall in 10 year Bund yields to minus 0.66%, and 10 year Treasury notes yielding just below 1.60% on Wednesday.
A fixed income investment manager added that, as investors have willingly put money into government debt that loses them money, they would be likely to lend to negative yielding corporates. “It’s still a strange concept to deal with,” he said. “I’m not sure we, as a house, would particularly go for those kind of assets, but I know there are insurance companies in Europe where they are more constrained as to where they can invest. If you have a mandate that means you can invest in those assets, you have to accept that negative yield.”
A second corporate syndicate banker thought investors still had plenty of cash to lend, and that some investors would be willing to invest at a loss. “[However,] there’s still going to be resistance," he said, "and a preference for positive yielding investment.
"Although, in the likes of the SSA or covered bond markets it's already been seen and accepted, [the IG market is] not going to be one where you will see deeply negative yielding bond issuance at least at the beginning — unless Bunds go to minus 1.5%.”
He added that issuers would probably react, in part, by offering longer durations to offer more yield.
This year, a number of companies have already printed bonds with negative yields. Medtronic, the Ireland-registered US medical device maker, did a €5bn jumbo bond in June. It’s €750m 3.4 year tranche paid a spread of 30bp over mid-swaps, and a yield with of minus 0.021%.
In March, French pharmaceutical group Sanofi, offered up a €850m three year note at 5bp over mid-swaps, with a yield of minus 0.05%