Coronavirus

Liquidity in corporate, financial and emerging market bonds has certainly been affected by the recent stress caused by the Covid-19 coronavirus pandemic. But there has not been a catastrophic collapse. Participants say markets are still functioning, and some means of trading have benefited.

The UK has pledged £30bn ($37.62bn) of stimulus to cushion the coronavirus pandemic’s economic impact, and now the Debt Management Office’s remit is expected to be £40bn higher than last year. But the Budget, delivered by UK chancellor Rishi Sunak on Wednesday, seemed to have little effect on Gilt yields, despite rising on the day.

Several loans bankers have said that the difference between the volatility prompted by the spread of Covid-19 and previous market shocks is that banks are better capitalised this time around, so key clients should have enough to support to help them through tricky times.

Once again, corporate bond markets have staged a recovery after a shutdown of several days as asset prices plummeted in response to the growing coronavirus outbreak. Three industrial companies plus JP Morgan issued bonds in the US on Tuesday, which “all went exceptionally well” according to a head of syndicate in London. Danone launched on Wednesday the first euro corporate issue of the week, paying a high spread but small new issue premium.

As emerging market bond fund outflows pick up pace, the new issue market may be shut for longer than many bankers and investors were anticipating even a fortnight ago. Now, attention is turning to which countries will struggle if external markets are shut or funding becomes more expensive.

The European Union is set to make at least €25bn of budget funding available for sectors affected by the Covid-19 coronavirus, as its institutions join forces to tackle the economic impact of the outbreak. Rules on state aid and public finance will also be loosened, giving member states more room to launch fiscal stimulus measures.

The recent fall in the price of oil is having a knock-on effect on non-core currency issuance. While oil dependent markets could take a hit as their currencies weaken, some net importers could benefit from a stronger currency and safe haven flows.

On Monday, a day when European stock indices plummeted, hedge fund giant Bridgewater Associates was executing short positions against 37 of the continent's companies, particularly in France, Germany, Spain and the Netherlands.

Two new dollar transactions were launched in the Asian bond market on Wednesday, signalling a slow revival in confidence after a rough start to the week.

Chinese biopharmaceutical firm InnoCare Pharma kicked off bookbuilding for its Hong Kong IPO on Wednesday, securing over half of the deal with cornerstone investors.

What a time to be a new UK chancellor of the exchequer preparing to make your maiden Budget speech, as Rishi Sunak will do on Wednesday. He has motive and opportunity to borrow big and pay little for it. Brexit and the coronavirus outbreak mean a lot of spending will need to be funded to keep the UK economy running. But how the cash is deployed will shape the government's credibility in the eyes of Gilt investors.

Market participants are calling on European financial authorities to help banks deal with the impact of Covid-19. Forbearance could come in the shape of state guarantees or in the form of the relaxation of certain elements of bank capital requirements.