4 Min Read
* Corporates raise debt ahead of political noise
* Cheap euro funding lures more US borrowers
By Laura Benitez
LONDON, March 7 (IFR) - Corporate borrowers are piling into the European bond market this week, in a bid to capitalise on the insatiable demand for paper from the region's investors before political uncertainty sours momentum.
Seven companies are seeking to raise a mixture of euro and sterling-denominated financing today, making it the busiest day by transaction volume so far this year for the European market.
This follows a busy starting session on Monday, where corporates sold €2.25bn across three euro deals.
Both domestic and cross-border companies have been eager to raise debt ahead of looming political risk, namely from the French presidential election, as well as potential QE tapering talk from the ECB.
"We're having one of the busiest weeks, there's a lot going on," said Frazer Ross, managing director on the global risk syndicate desk at Deutsche Bank.
"But at the same time there are risks on the horizon, such as the ECB meeting in Europe, while the US is factoring in a 90% (probability of a) rate hike from the Fed,"
"So, issuers are overall getting as much done while everything is so well bid. The market is bullet proof right now, so there's a definite feeling of frontloading."
Credit has been well bid due to high investor cash reserves, with some accounts having as much as €500m a week to use on new issues, bankers say.
Higher risk credit Nokia (Ba1/BB+), for example, attracted €6.5bn of demand for a €1.25bn dual-tranche bond on Monday, while French companies received blowout demand for their transactions last week, demonstrating the solid support for the asset class despite the upcoming election risk.
"Investors have all this cash they need to use, particularly the French, who are the driving forces behind most of the deals right now," one banker said.
"But elsewhere, buyers are actually becoming more and more selective and price-sensitive. It's becoming an overheated market and we've been talking about the risks here for a while now, the ECB namely, which is why we're telling issuers to get in now."
Bankers are busy speculating about whether ECB President Mario Draghi will hint at further changes to the corporate sector purchase programme on Thursday, following the central bank's latest meeting.
The programme is already set to reduce to €60bn a month from €80bn from April this year, leaving credit investors grappling with what is expected in the longer term.
"I think there could be some pressure on Draghi to hint to how they are thinking about QE, although he will, in my view, be cautious saying too much," the second banker said.
"He isn't going to want the market to taper tantrum so close to French elections."
Today's deals include German auto company Daimler, Italy's Italgas, UK mobility service Motability and Finnish telecommunications company Elisa.
US corporate borrowers also made a significant dent in Europe's market on Tuesday, with Molson Coors, Thermo Fisher and Priceline raising euro funds for repayment of debt as well as acquisitions.
The former also raised US$1bn across a dual-tranche bond in the US dollar market on Monday.
Today's trio follow multi-billion deals from Coca-Cola and Pfizer last week, which both broke new ground with floating-rate notes sold above par.
Despite Coca-Cola and Pfizer's paltry coupons offering investors little, if any, return, demand for the transactions sky-rocketed as investors protect their portfolios ahead of the looming political risk.
Reverse Yankees have made their mark on the European market this year so far, with Avery Dennison, Parker-Hannifin and McKesson selling their debut euro deals in 2017.
The US investment-grade bond market is also firing on all cylinders.
Monday saw US$22.65bn print across 11 deals, four from corporate issuers, the second largest day of 2017 so far, as borrowers looked to get ahead of a looming rise in rates.
Reporting By Laura Benitez,; Editing by Philip Wright and Robert Smith