Junk-Bond Sales Soar 122% in Nordics as Europe Bids Pile In

Never before have junk-bond issuers in the Nordic region enjoyed such intense demand, with sales drawing in new buyers from the rest of Europe, including those who usually only touch investment-grade debt.

Issuance of Nordic high-yield corporate bonds soared 122% in the first quarter from a year earlier to $7.6 billion, across currencies, according to data compiled by Bloomberg. Euro-denominated junk bond issuance grew 48% over the same period to $34.4 billion.

With Nordic high-yield borrowing costs -- as measured by credit spreads -- about 200 basis points higher than in the euro market, investors are looking north “as they search for yield,” Ole A. Kjennerud, a credit strategist at DNB Markets in Oslo, said by phone. He also says the arrival of investment-grade buyers looking at Nordic junk debt is “a trend we haven’t seen before in this region.”

Junk-Bond Sales Soar 122% in Nordics as Europe Bids Pile In

Nordic junk-bond sales set records in February, March and April, and Kjennerud says there’s every likelihood issuance this year will be higher than ever before.

A lot of high-yield issuers in the region are now diversifying their funding beyond local currencies, with junk bonds denominated in euros making up almost half the total so far in 2021, compared with a quarter last year.

Such funding risks haven’t gone unnoticed by Sweden’s financial watchdog. Real estate companies in particular should have diversified financing by issuing bonds in euros as well as kronor, Erik Thedeen, director-general of the Financial Supervisory Authority, said on Friday.

Meanwhile, investors in the debt are starting to get picky when it comes to dollar-denominated issuance, which last year accounted for almost 40% of the total.

“In some parts of the Nordic high-yield market, the premium for issuing dollar debt seems to have increased, with investors now requiring a larger premium for owning USD-denominated bonds,” said Mark Naur, a strategist at Danske Bank.

Junk-Bond Sales Soar 122% in Nordics as Europe Bids Pile In

DNB’s Kjennerud says “funding costs in euro have been much more attractive than in dollars this year, so there’s a strong incentive for corporate borrowers to raise in euro versus dollars, especially in the longer end.”

Part of the reason Nordic issuers now rely less on dollar bonds is tied to their focus on sustainable debt, for which investors are willing to pay a premium. One such example is renewable energy company Scatec ASA, which chose to issue its first euro-denominated green bond earlier this year.

Among the reasons for choosing the single bloc currency “was increasing interest from euro investors that do not have a mandate to invest in Norwegian krone,” Scatec’s chief financial officer Mikkel Torud and Ingrid Aarsnes, its VP communications and investor relations, said in an interview.

Torud also pointed to the greater size of the euro high-yield market and how “tapping the euro market with a green benchmark bond is further expected to pave the way for potential new bond issuances.”

“Given the demand for sustainable debt in Europe, issuers may be able to secure better terms in euros than the equivalent issuance on the North American markets,” Kjennerud said.

©2021 Bloomberg L.P.

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