UniCredit

Demand is so hot in Europe's corporate bond market, that with pricing being driven to ever tighter levels, bankers are beginning to believe the rally is self-sustaining, and would continue even without European Central Bank (ECB) support, writes Nigel Owen.

The European high yield bond pipeline was stuffed with an array of mainly sub-benchmark deals this week, after issuance volume hit a historic high.

Leveraged loan issuance is set to outpace sales of new high yield bonds with a surge this year, pushed by a varied array of borrowers seeking not just tighter margins on old debt, such as US chemical group Angus this week, but also funding for acquisitions, as with Nordic travel operator Etraveli.

If the only benchmark euro deal on Thursday had been true to its roots, it would have built a waiting list rather than an order book. But demand still far outstripped supply when Italian luxury sports car manufacturer Ferrari sold its second corporate bond issue.

Italian corporate issuers have dominated bond issuance in recent weeks but Wednesday brought a pair from Iberia, as two energy suppliers took advantage of the market's hot conditions.

German car manufacturer Daimler has proven a good medium to track the tightening of euro corporate bond credit spreads in 2017, having issued more than €9bn before the end of October. On Tuesday, a €1bn 10 year deal took that total within €1bn of the issuer’s 2016 total, but it didn’t come cheap.

On Monday, French laboratory testing company Eurofins Scientific followed last Monday’s €299m equity sale with a €300m hybrid deal paying very little new issue premium, as the firm’s funding keeps pace with its acquisitions.

Amprion, the German electricity transmission firm, is looking to raise €100m with the Schuldschein product as well as the Namensschuldverschreibung (NSV) — a similar instrument that is registered and can have a maturity longer than 10 years.

Bonds issued by Italy’s most prominent banks surged in value on Wednesday, after S&P upgraded the credit ratings of 11 of the country’s financial institutions.

Corporate hybrid bond investors have been heavily scaled back on their recent orders for new deals, so they will have been pleased by French laboratory testing firm Eurofins Scientific's Halloween Tuesday announcement mandating for its latest deal.

A benchmark deal from 2i Rete Gas, rated Baa2/BBB, was not in the same league as the storming transactions the corporate bond market saw on Monday. Those involved felt they were a day late arriving at the party.

Wind Tre, the Italian telecoms group, delivered Europe's largest ever high yield bond issue this week, a €7.3bn deal that has raised the bar for the market and led to expectations that more sponsors will follow suit amid heady investor demand.