New lockdowns have ripped up January’s usual sleepy corporate bond calendar
The more infectious new variant of the coronavirus has rattled Europe, plunging major economies back into lockdowns. This is already reshaping January’s usually lethargic pace of high grade corporate bond issuance and market participants should expect a frenetic start to the year.
On Monday, UK prime minister Boris Johnson placed England into the strictest lockdown since last March. Italy, Austria, France and Germany are all already in lockdown.
One of the many consequences of that will be to deprive many of Europe’s corporates of the means of earning revenue. That was a recipe for market closure, emergency loans, government support and spread widening last year.
But this time is different, and the bond market is already riding to the rescue. The European Central Bank is vacuuming up high grade corporate debt through its Corporate Sector Purchase Programme and, to a lesser degree, its Pandemic Emergency Purchase Programme.
That, along with other support measures, has given investors the confidence to keep buying bonds and lending to Europe's stricken corporates. And with vaccines being rolled out across the world, investors will be hoping that it is only a matter of time before they can profit from economic recovery.
All of that has left many issuers' secondary market spreads within a whisker of pre-pandemic levels.
Corporate treasurers are so far happier than ever to make an early start in making sure their liquidity remains intact. Bond bankers are fielding calls from clients looking to raise money for liquidity reasons, while the loan market is providing financing to a smaller extent — most notably so far this week, a £2bn UK government-backed liquidity facility for British Airways.
Investor intent is clear — they don't need asking twice if they are ready to get involved. BMW’s €1.5bn trade on Monday, the first corporate deal of the year, priced at or inside fair value. Volkswagen was one of four issuers to repeat the trick on Tuesday.
In a more typical January, the corporate bond market takes its lead from the sovereign, supranational and agency sector — always hectic in January. But this year that is already looking a dated approach. With the course of the pandemic — and the economy — so uncertain, but with such extraordinary support underpinning the primary bond markets, investors and issuers waiting for February to see how the market shapes up will likely have missed the boat.