Coronavirus

Some investors are moving cash out of the sovereign, supranational and agency bond sector and looking to deploy resources in high grade corporate credit, thanks to improved valuations in that sector and the threat coronavirus poses to sovereign debt sustainability.

Rating agencies are starting to feed through the impact of coronavirus into their ratings, starting a wave of downgrades which could push several large issuers out of investment grade territory, where they are eligible for central bank backing, into high yield, where no such support exists.

Market participants are already questioning the legitimacy of new ‘expected loss’ accounting rules, with the eurozone, the UK and the US having all now softened the application of their standards for banks during the coronavirus crisis.

Unusual or less traditional ways of trading bonds — via electronic platforms and exchange-traded funds — look set to come out well from the recent market turmoil.

The coronavirus crisis has focused attention on how companies can get access to cash, and for many, that is a top priority. However, there are some that feel they have enough, and are going in the opposite direction: spending it for financial gain. Many, and even some banks, are considering buying back bonds at the current cheap prices.

For years, the best sovereign issuers in the emerging markets would boast that their latest bond deal showed how much the mystical “international financial community” supported the current administration’s macroeconomic management. And EM investors would pretend that buying the stuff was to have the map to Treasure Island.

Panama acted swiftly to capture crucial funds on Thursday, jumping on an improved market to raise $2.5bn of debt and giving a glimmer of hope to emerging market countries as fears were beginning to rise of a devastating funding squeeze for the developing nations just when they most need finance.

‘Corona bonds’ have been talked up so much that the EU risks underwhelming the market by failing to act. It has become a question of political solidarity within the region, not simply one of debt management.

Those working in capital markets have found aspects of working from home difficult. But many believe the new routines will not be put back in the box once offices are allowed to fill up again.

Bank of America reopened the market for financial institution bonds in euros this week and was followed by a slew of other deals as investors welcomed wider spreads and new issue concessions.

The coronavirus crisis has made it difficult for banks to know how much wholesale funding they will need in the coming years. But when a window opened in the primary market this week, issuers showed that they are still focused on trying to build up their levels of total loss-absorbing capacity (TLAC), write Tyler Davies, David Freitas and Bill Thornhill.

Public sector borrowers returned en masse to the primary bond market this week, with many selling new issues with an explicit focus on providing emergency financing in response to the coronavirus outbreak.