Building momentum

It has been an extraordinary year for the debt capital markets. Just over a year ago the world economy flew so close to the flames that it seemed like complete meltdown was the most likely outcome. In the aftermath, most markets ceased functioning in any meaningful way. The loan markets went into a paralysis from which some are still tentatively emerging, while even those that resumed business more quickly have shrunk. The equity markets went into freefall, and though they have since bounced back, opinion is sharply divided over how sustainable...

The EBRD was the first SSA issuer to push spreads back through Libor. That trend began in June and has continued since, helped by the fact that many borrowers are already a substantial way through their requirements. As the market reopened in September, new issue spreads were again contracting: the risk aversion trade at the beginning of the year looked increasingly like an historical aberration in the history of SSA debt issuance. It was a nervous start to the year for the SSA sector. Participants understood that overall funding levels were...

On December 17 2008 Deutsche Bank signalled it would not be exercising the call option on its €1bn 3.875% January 2014 Lower Tier 2 issue the following month. The news caused a collective intake of breath from market participants on all sides of the business. With the extension risk genie well and truly out of the bottle, issuers had some tough decisions to make, weighing up economic versus reputational risk. Investors had to reassess perceived redemption certainties, while intermediaries were left wondering what advice to offer buy-side and...

Before the European Central Bank even spent a penny of its proposed €60bn covered bond purchase programme, the announcement in May that it would prop-up Europe's €2trn covered bond market was enough to put the asset class on the fast-track to recovery. The ECB had essentially set three goals: a tightening of spreads, the resumption of issuing activity in the primary market and a revival of activity in the secondary market. Two months after buying commenced, covered bond spreads had tightened 60bp on average. So profound was the effect, it...

Hardly a week has past this year without another record of some sort being broken in the corporate bond markets. Risk appetite moved from the more recession-proof sectors to more cyclical credits as investors chased yield, but there has consistently been activity. At the end of September there had been 213 benchmark corporate bonds denominated in euros, totaling €223bn. The year had already comfortably smashed the previous annual record of €200.2bn set in 2001, with a quarter of the year remaining, according to data from SG CIB. Moreover, all...

In the months before the start of the year, US high-yield issuance was nearly non-existent. The credit freeze ensured that between October and December 2008, only three US dollar denominated deals priced. It was against this backdrop that issuers and underwriters began 2009. Under such tenuous conditions, issuers gingerly stepped back in, pricing only strong Double B credits with high yields, steep discounts and favourable uses of proceeds to attract buyers. As the New Year began, however, investors appeared to be ready to turn over a new leaf...

There is certainly no shortage of appetite from cash rich investors for interesting opportunities at the moment. Russian quasi-sovereigns and CIS energy blue chips are especially appealing: Gazprom secured stellar books of €9.4bn and US$7bn for July's increased €850m and US$1.275bn 8.125% dual tranche five-year issues. Even troubled Kazakhstan's state-controlled KazMunayGaz attracted US$3bn of orders for its US$1.25bn 11.75% long five-year, printed in July before being tapped by US$250m two weeks later at 11%. These two energy giants were...

The US high-grade bond market came full circle in 2009. Several large, high-profile trades in the first half were driven by M&A volume, notably Pfizer and Roche, two pristine credits. They funded their purchases with bonds while that market was hot – and the loan market was anything but. Both record-breaking offerings – US$16.5bn from Roche and US$13.5bn from Pfizer – priced before the purchases they backed were completed. That in itself was an anomaly in the credit markets: acquirers usually obtain loans to fund a deal’s cash portion, before...

It is shaping up to be a great second half for Latin America. In September and early October alone, the region saw close to US$13bn in new DCM supply, not including a US$3bn plus local Reg S issue from Venezuela. That is almost half of the approximately US$28bn in international issuance seen between January and August. The healthy US$41.6bn sold by October 2 is also more than double the US$20.29bn seen during a lacklustre 2008, when markets began to feel the full brunt of the global financial crisis and liquidity dried up. If momentum...