European Credit Rally Moderates After Earlier Vaccine Euphoria

European credit markets rallied for a seventh day on Tuesday, albeit at a slower pace following the previous day’s euphoria that came in response to signs that an effective Covid-19 vaccine may be near.

Default-risk gauges fell to levels last seen in February for investment-grade debt and the lowest since March for high yield. The benign conditions brought six borrowers to market with new bonds on Tuesday, a day after yield spreads for investment-grade securities over government debt fell below 100 basis points for the first time since February.

But the mood was less jubilant than the previous day when news first broke that a vaccine developed by Pfizer Inc. and BioNTech SE was found to protect most people from Covid-19. Commerzbank AG credit analysts warned the practicalities of distributing a new vaccine meant risks of economic disruption remain, with high-yield borrowers in sectors such as travel and leisure most vulnerable.

“Even if a vaccination proves effective, inoculating a large enough part of the population will take time and leave these segments prone to economic lockdown fallout,” they said in a note on Tuesday.

Europe

The European Union is set to price 8 billion euros ($9.4 billion) of five-year and thirty-year social bonds as part of its so-called Sure program. The sale attracted 140 billion euros of combined orders, well short of the record-setting 233 billion euros of demand for its first sale of the notes just three weeks ago.

  • Russia is planning two euro-denominated bonds maturing in 7 years and 10 or 12 years
  • Allianz SE is selling a perpetual dollar-denominated note, while Caixabank SA is offering euro-denominated green bonds
  • The riskiest form of bank debt is back in profit for the year for euro investors, after rebounding from losses of as much as 26% at the height of the coronavirus selloff in March
  • The hybrid bonds of shopping centre owner Unibail-Rodamco-Westfield fell the most since April after shareholders rejected a plan to raise capital through an equity sale
  • U.K. housing associations are lining up behind a new sustainability-reporting framework, as they seek more funds from socially responsible investors to help ease accommodation shortages

Asia

Average prices of high-yield dollar bonds with longer maturities rose 0.5 cent in Asia on Tuesday, traders said. That leaves them up for a seventh straight day, the longest streak in more than two months, according to a Bloomberg Barclays index.

  • Investment-grade dollar note spreads in the region fell 5-10 basis points, the most in five months
  • Amid the rally, at least four borrowers including Redco Properties Group Ltd., Guangxi Investment Group and China National Bluestar (Group) were marketing dollar bonds to investors on Tuesday

U.S.

U.S. junk bond yields rode a rally in risk assets to a record low on Monday, as investors buoyed by a Joe Biden presidential victory and progress toward a Covid-19 vaccine poured into the debt of riskier companies.

  • The cost to protect corporate debt against default in both the U.S. and Europe dropped to the lowest since February after the vaccine news
  • Coal miner Peabody Energy warned of a possible bankruptcy, and is in talks with lenders to avert a violation of debt terms.
  • YouFit Health Clubs filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court District of Delaware
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas

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