Coronavirus Puts Europe’s Company Bond Market In Deep Freeze

(Bloomberg) --

Global borrowers shunned Europe’s corporate debt market for a second day as a cluster of new coronavirus cases in Italy sent yields sharply higher, bringing sales of new bonds to a near standstill.

Just one corporate deal has surfaced Tuesday, joining a downsized ING Groep NV sale yesterday in a week that had been expected to deliver more than 20 billion euros ($22 billion) of sales, according to a Bloomberg News survey. Spain and the European Stability Mechanism are also braving the market today.

Investors may have underestimated the impact of lock-down on supply chains and the global economy due to the virus outbreak “and yesterday we were reminded of this,” said Holger Mertens, head portfolio manager, global credit, at Nikko Asset Management. Martens said he expects “supply will continue to be strong” once volatility eases.

The slump in corporate bond-sale activity is a far cry from January, when Europe’s debt market enjoyed its best-ever start to a year with 238.8 billion euros of sales. February also kicked off in similar fashion, with the biggest company bond offering since 2016 from LVMH Moet Hennessy Louis Vuitton SE helping spur a record week for sales of corporate debt.

Plans Scrapped

Since then global markets have tumbled as the virus spreads to new countries, with the number of cases worldwide now topping 80,000. As well as shutting companies out of the market, borrowers are also adjusting plans when it comes to marketing potential offerings, with Hamburg Commercial Bank scrapping investor meetings in Italy next week in favor of a conference call.

Euro investment-grade borrowing costs have surged by the most in more than 18 months, while measures of credit risk rose to the highest since September on Monday. That failed to deter PACCAR Inc from offering 300 million euros of notes via its European financing arm Tuesday, the first sale in the currency from a non-financial borrower since Feb. 20, data compiled by Bloomberg show.

--With assistance from Paul Cohen and Tasos Vossos.

To contact the reporters on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net;Alice Gledhill in London at agledhill@bloomberg.net

To contact the editor responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net

©2020 Bloomberg L.P.