Europe

Italy’s bonds took a hit on Wednesday afternoon after the country’s president Sergio Mattarella allowed the Five Star Movement and the Northern League — the best performing parties in the country’s general election in March — 24 hours to form a government before he appoints a non-partisan prime minister.

A sale of Burberry shares by Group Bruxelles Lambert caught investors by surprise on Tuesday and left Goldman Sachs believed to be holding stock or nursing a loss in the luxury fashion house after being unable to cover the deal in full.

At £750m, the debut sterling covered bond issued by LBBW on Wednesday was by far the largest ever of its kind sold by a European bank, with the trade attracting demand that was off the scale compared with anything that had previously been issued in the currency.

The European leveraged finance primary market has been idling this week, with less than €1bn of paper on offer. Backstage, however, things have been buzzing.

One of the select group of companies that has issued Eurodollar bonds in recent years returned to the market on Wednesday after a two year absence, as BP raised $500m, aided by strong demand from Asia.

Daimler, the German car manufacturer, has raised more than €7bn equivalent from three different corporate bond markets within two weeks of announcing its quarterly results on April 27. The sterling market was its focus on Wednesday.

Banks are expected to pile back into the capital markets with new bond issues next week, having so far been sidelined by a number of public holidays in May.

US President Donald Trump’s decision to reimpose sanctions on Iran has sent Turkey’s bonds, already under pressure from a weakening currency, flying wider.

Covered bond investors say that, in isolation, their market looks in good shape. The trouble is, US equities and Treasuries are looking overvalued and a sell-off there could well spark a rout in global credit markets which will invariably hit covered bonds.

The strengthening dollar is wreaking havoc for emerging market bond investors as assets in local currencies and dollars alike take a hammering.

The volatility and widening of corporate bond spreads in Europe since February has led many bankers to comment that the balance of power has shifted from issuers to investors. Investors, however, suggest otherwise.

Europe's IPO market took a blow this week when scientific publisher Springer Nature pulled its €1.2bn Frankfurt listing at the last minute, even though bookrunners had released a final covered message.