Investors Clamor for Credit With New Deal Demand Off the Charts

(Bloomberg) -- Investors are meeting a flood of corporate debt issuance with even greater demand, a strong sign for risk appetite as issuers continue to bring new deals.

YUM! Brands Inc., brought the first U.S. high-yield offering in nearly a month, boosted the size of its deal to $600 million from $500 million amid $3 billion of orders. Oracle Corp., which was downgraded by two credit raters after announcing a deal Monday, had amassed more than $50 billion in orders for what became a $20 billion offering, according to people with knowledge of the matter.

Credit markets are showing signs of thawing, as strong reception of record investment-grade issuance has trickled into the high-yield market. While market access was initially limited to only top-notch firms like Exxon Mobil Corp. and PepsiCo Inc. just two weeks ago, investors have since gotten more comfortable with riskier names, and massive demand has cut down borrowing costs.

Last week, U.S. companies borrowed a record $109 billion, met with $550 billion of demand, in what one dealer called a “food fight” for new bonds. It was a similar story in Europe, where investors placed more than 310 billion euros ($340 billion) of orders for about 75 billion euros of bonds. Asia’s dollar bond market, however, hasn’t had any issuance for several weeks.

“As corporates should remain keen on retaining liquidity to weather the growing pain of lockdowns, we expect issuance windows to continue to attract issuers,” Commerzbank strategists said in a note to clients this morning.

Investment-grade issuers marketed massive deals. Oracle was in the market for the first time since 2017 with a $20 billion six-part offering, with maturities ranging from five to 40 years. AB InBev’s 4.5 billion euro sale included bonds due in seven, 12 and 20 years.

U.S.

YUM! Brands sold the first junk bond sale since March 4, one of the most positive signs of the recovery in credit to date. The investment-grade market continues to be active, with 12 deals set to price a combined $37.175 billion.

• Sysco also sold a jumbo transaction with maturities ranging from five to 30 years. It’s a quick return for the company, which last sold bonds on Feb. 11
  • Oracle’s bonds tightened 40 bps from initial talk to pricing as order books swelled
  • For deal updates, click here for the New Issue Monitor
• Airlines worldwide raised more than $17 billion in bank loans in March to shore up finances as the coronavirus grounds flights, with U.S. carriers like Delta the most active

Europe

Seven deals combined to price 10.8 billion euros, putting Europe’s primary market on a path to post 500 billion euros of quarterly sales for the first time.

• AB InBev, Thermo Fisher Scientific Inc. and Volkswagen AG led the calendar with multi-tranche offerings
• Goldman Sachs says it’s too early to decisively say market’s have “turned the corner,” while JPMorgan says the worst has passed
• Euro IG company bond spreads at 241 basis points have eased slightly after reaching the highest since 2012, according to a Bloomberg Barclays index; current levels are about 35bps too wide as the market is “not properly discounting” ECB corporate bond purchases, according to ABN Amro strategists
• Companies are also heading to the loan market to shore up financial buffers, with Airbus and Daimler potentially closing at least 25 billion euros ($28 billion) of combined new loans within weeks

Asia

• The Markit iTraxx Asia ex-Japan index of credit-default swaps increased about 8 basis points to around 142, according to traders; the gauge tumbled 49 basis points last week, its steepest fall on a percentage basis since 2009, according to CMA data
• Spreads on Asia investment-grade dollar bonds were 5-10 basis points wider this morning, according to traders, putting them on track to widen for the first day in five; liquidity is very thin, according to one of the traders
• Global credit is a “buyers’ market right now” for investors holding cash, according to portfolio manager Raymond Lee at Kapstream Capital. “Even high-quality, high-rated investment-grade names are trading very wide based on historicals and look like good investments”
• A global economic slowdown caused by virus containment steps “will trigger a default cycle in credit worldwide,” said Paul Lukaszewski, head of corporate debt for Asia and Australia at Aberdeen Standard Investments
  • “The question for investors to assess is how severe this cycle will be compared to what is priced in,” he said, adding that the wide credit spread levels last week had reached the peaks of all prior downturns this century with the exception of the global financial crisis
• Local currency markets in Asia have also been hit; the latest sign of that was in Korea, where yields have jumped:

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