Winners All Around in Europe's Corporate Bond Market

(Bloomberg Gadfly) -- Europe is awash in corporate bond mandates and syndicated deals from sovereigns, blotting away memories of the tricky time the market had in March. This could wind up being one of the biggest weeks of the year. And the outlook is good -- there's still some way to go before indigestion strikes.

Conditions are nearly ideal as there has been little regular auction supply in European government bond markets this week -- the mere 14 billion euros ($17.3 billion) being offered is more than covered by a huge wave of 60 billion euros of redemptions.

This includes holdings at the European Central Bank, which has a record 22.6 billion euros rolling off this month. This will all be plowed back into the market over the next few weeks, in addition to its regular 30 billion euros of monthly purchases. 

What's nice for issuers is the drop in benchmark German bund yields -- now at just 50 basis points -- keeps their overall funding costs close to record lows.

For investors, widening credit spreads are a draw. 

Everyone seems to be winning. More than two-thirds of deals brought in April are quoted tighter than launch spread. That is a significant turnaround from March, when more than three-quarters of new issues widened.

So Ireland, Portugal, the European Financial Stability Facility, two Canadian provinces and Egypt have cleverly stepped in to soak up the funds. All attracted strong demand for their syndicated deals this week -- Portugal had 15 billion euros of orders for its 3 billion-euro 15-year bond. 

With sovereign and supranational issuers having made their mark, companies are lining up, followed by high-yield borrowers. Though Renault SA and Peugeot's PSA Banque are on the scene, it really is remarkable that none of the big German automakers have deigned to issue a benchmark deal. One wonders what they're waiting for -- conditions surely can't get too much better, given the strains that fixed-income has faced since the start of the year.

Italy may be lurking with a long-dated deal, though if so it may arrive fashionably late to the party. On Thursday it will tap four exiting securities, including 30- and 40-year debt, so it might want to wait before launching its second syndicated bond of the year.

The rest of the month looks like it is going to get busier on the new issue front, and there's a good chance everything will be well-absorbed. Even European Central Bank governing council member Ewald Nowotny's call for a rate hike, which was swiftly placed in the "personal remarks" column, has been shrugged off.  It should be happy days in Europe's corporate bond land for a little while. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

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