Feast-or-Famine Credit Markets Lure Bargain Hunters to New Sales

Credit investors are scoring some of the highest new issue concessions in years. That’s because companies that seize the occasional window for bond offerings are competing to entice buyers who want to be compensated for a growing list of risks.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Credit investors are scoring some of the highest new issue concessions in years. That’s because companies that seize the occasional window for bond offerings are competing to entice buyers who want to be compensated for a growing list of risks. Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The average extra yield that non-financial companies in Europe are paying on new sales is at its highest level since June 2024, according to data compiled by Bloomberg. In the US, these concessions more than doubled in March compared to the prior month.Adding sweeteners is becoming imperative for companies to attract buyers, especially as they have to compete with other borrowers on days when risk sentiment is strong enough to allow bond issuance to resume. The dynamic is turning into a money-maker for investors already having to navigate the disruption of artificial intelligence and the prospect of higher inflation, fueled by the energy crisis.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Joost de Graaf, co-head of the credit team at Van Lanschot Kempen Investment Management NV, has been one of the money managers looking to lock in value from newly sold notes.“Luckily the primary market has been open for most of the widening and there you see that new issue premiums that need to be paid are clearly going up,” de Graaf said in an interview.This week, some bonds showed a “significant new issue premium that we haven’t seen for quite some time. So we’re quite happy with that and we’re taking advantage of such bonds when they are being offered,” he added.New issue concessions are the extra yield over the same borrowers’ existing debt. They’re currently rising so much in the US and Europe primarily because risk is increasing across the market as a whole.“Too Many Bonds”The last time concessions were this high in Europe, French President Emmanuel Macron’s decision to call a snap election had sent the country’s sovereign and corporate debt into a tailspin, prompting new issues from local borrowers to come with large giveaways.For Kshitij Sinha, a fixed income fund manager at Canada Life Asset Management, “the most interesting” new deal was a €650 million ($750 million) note sold by Australia Pacific Airports Melbourne Pty Ltd earlier this week, which he said came with a five to 10 basis point concession.With more trading days likely to be written off as a result of the war in Iran, companies have been seen rushing back to the market whenever they can. The unpredictable supply volumes prompted TD Securities’ US credit strategist Hans Mikkelsen to write in a note there are “too many bonds chasing too little money.” More than a third of March’s business days have featured no high-grade deals at all in the US, based on data compiled by Bloomberg. It’s a similar picture in the European market.In Europe, each day the new issue market is shut creates an additional need of €2.7 billion of refinancing, according to estimates by Barclays Plc analysts. There were no new corporate bond issues in Europe or the US on Thursday as a surge in energy prices threw the global bond market into a tailspin.That said, the US corporate bond market came close to a record last week, boosted by a blockbuster sale by Amazon.com Inc. Earlier this week, even riskier corners of the credit world, like banks’ Additional Tier 1s, came back to life again.“Elevated supply, macro volatility, and sector-specific concerns around AI and private credit have kept investors selective in primary markets,” Goldman Sachs analysts led by Spencer Rogers wrote in a note Thursday. They blamed these factors for what they calculated as the highest concessions on US dollar high-grade new issues, on a four-week trailing basis, since late 2023.Investors know that new bond concessions can dissipate as quickly as they went up and buying enough bonds on the primary market is by no means certain, especially when orders are outweighing the amount sold several times.Still, they are a welcome sign for asset managers who don’t see the rise in extra yield corresponding to a decline in companies’ creditworthiness.“We take company fundamentals into account but for a large part of the market that hasn’t changed materially in the last few weeks,” Van Lanschot Kempen’s de Graaf said.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. 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