Goldman Sachs Group Inc joined a rush of borrowers selling new bonds in Europe yesterday after the US pledged a massive stimulus package, adding fuel to a global credit-market rally.
The Wall Street giant is offering euro-denominated senior notes a day after Bank of America re-opened the European market for the securities. Yet deals are coming at a cost. Goldman is offering a spread about four times as much as what it paid to sell euro 10-year notes just two months earlier, according to data compiled by Bloomberg.
“Issuers are coming with high new issue premiums,” said Arnaud Colombel, head of credit at La Banque Postale Asset Management. “The good news is the appetite from investors is quite huge.”
Nine borrowers including Danaher Corp, Heineken NV and Bertelsmann SE & Co KGaA are raising new debt in Europe, as firms take advantage of a fourth day of easing credit risk. Default-swaps on European high-grade corporate debt have fallen to about 90.5 basis points from as much as 130 at the start of the week as markets digest the more than $2tn of spending and tax breaks in the US, alongside Federal Reserve measures to ensure credit flows through to corporations.
“The reaction in euro bond markets so far has been reassuringly positive, with CDS indices tightening yesterday and primary markets finally showing signs of life,” said Tomas Hirst, a strategist at CreditSights Inc.
However, he cautioned of “significant uncertainties” remaining over corporate cash flows.
Europe’s strong open follows a positive session in Asia, where the cost of insuring against bond defaults slid further after the biggest retreat since 2008 on Tuesday. Still, major risks for credit markets abound as money managers try to work through unprecedented investor redemptions and countries struggle to deal with the coronavirus pandemic that’s killed almost 19,000 people.
“In the medium term, for the rally to continue, it depends on public health measures being effective and the virus infection rate globally decreasing sustainably,” said Ek Pon Tay, portfolio manager for emerging-market fixed income at BNP Paribas Asset Management. “I’ve been buying since late last week. I like the risk reward of being long here,” he added, singling out a preference for Chinese names.
Nine borrowers are marketing new bond sales this morning, following Tuesday’s 26.5bn euoros of sales in what was the fourth-busiest day of the year; Danaher is leading the sales rush with a triple-tranche euro offering, while Goldman Sachs, Carrefour and Philips are among the day’s other sellers.
Banks are starting to offer senior euro bonds, after a week of lenders mainly only issuing ultra-safe covered notes due to the global volatility; Yet the deals are coming at a cost, with Goldman marketing euro five-year notes at about MS +365 after pricing euro 10-year senior notes at MS +85 in January.
The rush comes amid a fourth day of easing credit risk, with default insurance costs on the region’s best-rated companies falling to about 90 basis points from as much as 130 just a few days ago.
Nonetheless, euro high-grade company bond spreads at 247 basis points remain the highest since 2012.
Credit gauges in Asia showed more optimism yesterday, a day after spreads on dollar notes in the region tightened for the first time in 10 days.
Asia investment-grade dollar bond spreads were about 20-60 basis points tighter, according to traders. A more than 20 basis point decline would be the biggest drop since 2013. Still, the spreads remain near the eight-year high they hit on Monday.
Prices for China high-yield dollar bonds rose 2 to 5 points, according to traders.
Berkshire Hathaway Inc mandated banks for potential yen bonds. But the broader Asian dollar bond market was essentially bereft of new offerings, in contrast with a flurry of deals in Europe and the US.
With many Asian issuers still able to access cheaper funding in local currency bond markets, there’s been no need for panic-driven dollar bond issuance, said Mark Reade, head of fixed-income desk research at Mizuho Securities Asia.
Declines in Indian equities threaten to create new credit risks for the nation’s tycoons by forcing them to repay loans backed by shares.
Foreign money managers have slashed holdings of rupee company notes to a three-year low in March, which may hinder refinancing efforts for firms facing a record debt bill. CDX maintained a positive tone in both investment grade and high yield on Tuesday, after junk had lagged. Borrowers are returning to market, but still paying up significantly to do so.
There were eight deals in the market on Tuesday.
Morgan Stanley is adding short-dated investment-grade credit and holding off from adding risk with high-yield bonds and leveraged loans for now.
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