North America

Even the top-rated emerging markets corporates are mostly preferring to keep cash on hand rather than take advantage of a sharp fall in bond prices to repurchase debt cheaply, bond bankers said this week.

Investment grade corporate and financial institution borrowers showed their strength with more than $44bn of US bond issuance in two frenetic windows this week, after central banks took emergency action to avert a global depression.

“There are decades when nothing happens; and there are weeks when decades happen.” So said Vladimir Lenin, although the founder of Soviet Russia probably didn’t write this with the capital markets in mind.

Wild swings in the euro/dollar basis swap, and an unreliable interest rate swap complicated bond execution in the SSA market this week. While some liquidity has returned in rates, cross currency swaps are still behaving very strangely.

The biggest investment banks are enjoying strong trading revenues from the market moves related to the coronavirus pandemic, alleviating a freeze in M&A and underwriting activity. The banks appear well-placed to deal with corporate drawdowns, although there is some debate around wider liquidity profiles.

Royal Bank of Canada, Bank of Montreal and Toronto Dominion Bank all issued euro covered bonds in good size this week, finding big savings over senior unsecured issuance. One leading investor said bringing these deals in a fragile market was opportunistic and reflected The Bank of Canada's more restrictive provision of emergency liquidity than in Europe.

In a sign of the strength of the Canadian banking sector, Bank of Montreal and Toronto Dominion Bank were able to access the euro covered bond market in good size on Thursday with deals that provided a substantial saving compared to senior unsecured issuance. The deals followed a series of measures to ease liquidity from the Bank of Canada, including widening repo' eligibility to covered bonds.

Chinese e-commerce giant JD.com has hired Bank of America and UBS to lead a secondary listing in Hong Kong, according to multiple sources familiar with the matter.

Executing bond syndications from home has proved to be feasible, bankers said in the wake of Royal Bank of Canada’s five year covered bond issued on Tuesday. Even so, the lack of physical back-up from nearby colleagues and the seamless access to certain key functions such as trading means that working from home is very much second best in practice compared with normality.

That nine US companies and banks should launch bonds the day after a 12% fall in the S&P 500 index, the worst since 1987, is astonishing, but probably shows that companies are anxious to bank large quantities of cash in case markets get worse. The barrage of issuance comes despite core fixed income markets such as Treasuries, swaps and commercial paper being under strain.

Royal Bank of Canada, Toronto Dominion Bank and Canadian Imperial Bank of Commerce all attempted to access the covered bond market on Tuesday with euros clearly showing more depth than sterling. The fact the three issuers were in the market simultaneously, whilst a fourth was monitoring the market, is not coincidental and contrasts with European and UK issuers that already have a central bank liquidity life line.

Latin America bond issuers and investors were thrown deeper into the coronavirus crisis on Monday, with Friday’s spread tightening more than cancelled out as the US Federal Reserve’s surprise 100bp rate cut on Sunday failed to arrest a fall in risk assets.