French lenders BNP Paribas and Credit Agricole are offering the eurozone’s first new senior bank bonds for two months with market stress from the coronavirus starting to ease in both Europe and Asia.
The senior non-preferred bank sales will raise a combined 2.75bn euros ($3bn) and are among six deals in Europe’s primary market on Tuesday, snapping a dry spell for the region’s lenders after they largely sat out a marketwide sales bonanza last month.
“Bank bond instruments have made a remarkable recovery,” said Maureen Schuller, head of financials research at ING Groep. “This holds particularly for senior unsecured bonds, where bail-in senior is leading the performance.”
Recovering sentiment in credit markets and robust new issuance volumes follow aggressive moves by policy makers to defend economies from the impact of the pandemic. The risk premium over low-risk government debt on the highest quality euro-denominated company bonds fell the most since 2011 before the Easter holiday weekend.
“We went into the weekend with a substantial risk on, thanks to various policy measures. The key is how sustainable that proves to be as these effects always wane,” said Charles Diebel, head of fixed income at Dublin-based Mediolanum International Funds.
European stocks have extended gains to 20% from a March low, while Austria – one of the first countries in Europe to clamp down on public life – eased some curbs. In Asia, spreads on top-rated dollar bonds fell, while the cost of credit-default swaps retreated, according to traders.
The US Federal Reserve’s decision to expand bond-buying to include some high-yield securities also adds to a feeling that central banks are getting a handle on bolstering economies. Deutsche Bank strategists say it’s likely the European Central Bank and Bank of England could follow suit if the number of virus-related downgrades rises, while in China, bank lending and credit provision hit a record in March.
“The Fed’s move to include ‘fallen angels’ in its corporate bond purchase programs significantly reduced a key risk for US credit markets,” said Mark Reade, Hong Kong-based head of fixed income research at Mizuho SecuritiesAsia, referring to bonds cut to junk by ratings firms. He added that the rally in US high-yield securities is providing a “strong tailwind” for Asian credit this week.
Still, with the global number of coronavirus cases nearing 2mn and the death toll approaching 120,000, the pandemic is far from over and the economic impact of nationwide lockdowns will be laid bare when global companies begin reporting quarterly earnings numbers this week.
“Incentives to front-load issuance are certainly strong,” said Commerzbank AG strategists in a client note this morning. “We expect another unusually busy week in primary.”
France’s two biggest lenders will raise 2.75bn euros of bail-in notes, with investor orders passing 5bn euros for each deal. The sales are the first euro-denominated senior bank deals since February 18, according to data compiled by Bloomberg.
European borrowers have now obtained 75bn euros of bank loans since March 9 to weather the coronavirus, either through drawing down on existing revolving facilities or raising new financings
Spreads on top-rated Asian dollar bonds declined around 10-20 basis points Tuesday, according to traders, tempting Malaysian oil and gas giant Petroliam Nasional Berhad to begin marketing a dollar notes sale. Lenovo Group Ltd is holding fixed income calls for US currency notes.
“The market is certainly open for stronger credits, and a number of issuers are monitoring,” said Sean Henderson, co-head of debt capital markets for Asia Pacific at HSBC Holdings Plc.
The Markit iTraxx Asia ex-Japan index of credit-default swaps is headed for its fourth straight day of declines, according to CMA data.
China high-yield dollar bond prices rose 2-3 cents on the dollar Tuesday, according to credit traders.
Further losses at SoftBank Group Corp probably need to be factored in when assessing the Japanese company’s creditworthiness, SMBC Nikko Securities Inc credit analyst Kentaro Harada wrote in a report. SoftBank Monday forecast a record operating loss for the year ended in March, tied to investment valuation declines
JPMorgan Chase & Co said fixed income trading topped analyst estimates in the first quarter, as it also reported a 49% year-on-year slump in investment banking revenue. The lender reported a provision for credit losses of $8.3bn and said it provided more than $25bn of new credit extensions for crisis-hit companies
The high-yield market was active, after the Fed said it would support that market as well as investment grade. CDX indicated rising credit risk alongside a drop in stock futures, as investors prepare for what’s expected to be a dismal earnings season.