Corporate bond sales resume after week-long hiatus
Paint company Sherwin-Williams on Tuesday announced the first investment-grade bond sale in the US after last week’s drought, with a host of others following suit. The US action came after a slew of debt deals in Europe on Tuesday morning, including a €1bn bond for US industrial company Honeywell. On Wednesday, more than a dozen deals were announced in both regions.
Despite higher credit risk premiums, falling interest rates have helped keep a lid on borrowing costs for companies. The yield on a benchmark high-yield bond index run by Ice Data Services fell 0.2 percentage points to 5.88 per cent on Tuesday
The benchmark 10-year Treasury yield plummeted below 1 per cent for the first time on Tuesday, after the Federal Reserve cut its policy rate by 0.5 percentage point to support the US economy in the face of the outbreak.
“The Fed move drove up market volatility in the market, but I do think fundamentally this intervention will be viewed as good for credit. Even if it’s just that there is a lot more cheap money coming into the market,” said Rupert Lewis, head of European syndicate at BNP Paribas.
The Fed’s emergency cut followed supportive statements from finance ministers and central banks across the globe, as the G7 countries co-ordinated their message to markets. “That was enough to give markets a boost,” said Marco Baldini, head of European bond syndicate at Barclays. “It was enough to get issuance resurrected both in Europe and the US.”
Demand from investors for new deals appeared to be strong.
Relix, an analytics company, sold debt across 3 tranches on Tuesday, a €500m 12-year bond, an €800m eight-year and a €700m four-year, with multibillion dollars worth of orders for each tranche, according to people with direct knowledge of the debt sale.
Meanwhile, other corners of capital markets remained closed. Record label Warner Music and shoe maker Cole Haan have both delayed long planned public listings this week. “I think you have a window here,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “I can’t say how long it will stay open. It could be a day, it could be a month, but it could be the rest of the year.”