Europe Credit Holds Up Even as Emerging Stocks Enter Bear Market

(Bloomberg) -- Europe’s credit market is racking up strong sales and seeing a pickup in high-yield issuance, even as an emerging-market rout roils other global assets.

Primary issuance this week topped 20 billion euros ($23 billion) for only the second time since July, following deals from AT&T Inc., Orange SA and Lloyds Bank Plc. Non-investment grade Dometic Group AB also priced euro notes three months after being said to have postponed plans for a sale, while a slew of cross-border transactions from borrowers including a Thomson Reuters Corp. unit are set to come to market.

The surge in activity reflects a seasonal September pickup following the Summer vacations and a rush to issue before a looming cut in European Central Bank asset purchases that’s already starting to drive up borrowing costs. This combination has outweighed concerns that sent emerging-market stocks into bear market including a stronger dollar, trade tensions, and turmoil in both Turkey and Argentina.

See: September Rush Spells Diverging Paths for Euro and U.S. Credit

Still, the September credit-market pickup may be muted compared to previous years, reflecting 2018’s lackluster issuance. JPMorgan Chase & Co. expects high-yield borrowers to raise as much as 8.7 billions euros this month -- a 21 percent decline on last year, based on data compiled by Bloomberg.

The MSCI Emerging Market Index closed down more than 20 percent from a January high on Thursday, crossing the threshold into a bear market and sparking concern the rout that began in Turkey and Argentina will begin to infect other asset classes.

It comes at a time when investment-grade euro borrowing costs hit the highest in more than two years, according to Bloomberg Barclays index data. That helped deter ADO Properties SA from pressing ahead with a potential bond sale.

See: Euro Borrowing Costs Hit Two-Year High Amid ECB’s ‘Last Hurrah’

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