Bonds: Congestion at the end of 2023.. “strikes” to the Greeks – The Economic Postman

There is a real storm brewing in the international private sector fixed income markets, as many companies around the world rush to take advantage of the window of opportunity presented by falling bond yields and cap their financing needs at low interest rates.

After major jitters in September and October, with government bond yields rising to their highest levels in more than two decades, the prospect of central bank rate cuts in the first half of the new year has slightly boosted corporate bond yield levels. It is a development that most corporate-borrowers around the world would not leave untapped, and as it turned out, neither did the Greeks.

Markets: 30-year record of returns for a 60/40 portfolio

It is reported here that in November, the European Bank initiated the issuance of the first senior bonds after the restoration of investment grade for Greece, raising 500 million euros at an interest rate of 5.875% (versus 6.25%) initially. In fact, coverage exceeded 3 times, reflecting investors’ pursuit of returns.

Berrios took advantage of the same window, issuing new senior bonds, with the final interest rate set at 6.875% and below the initial interest rate set at 7.125%.

$250 billion was “raised” from the markets in one month

As foreign analysts say, November was a month for large issuances of fixed income securities around the world, as quite a few companies rushed to take advantage of the sharp decline in borrowing costs.

According to data from LSEG, corporate borrowers in the U.S. and Europe issued $246 billion in investment-grade and junk bonds in November alone — up 57% from the October total and $16 billion above the average for the first 10 months of the year.

Morgan Stanley also referred to the “rush” of companies, recalling that such activity has not historically been observed in the last weeks of the year, especially with the American Thanksgiving holiday approaching. The acceleration in issuance follows a rapid shift in investor sentiment in recent weeks, as markets begin to price in interest rate cuts in the United States and Europe in the first half of next year.

Last October, fears of higher interest rates for a longer period prompted many companies to halt borrowing plans. “There is definitely a bidding wave trying to arrive before the end of the year,” Wells Fargo’s Maureen O’Connor told the Financial Times. He added: “All the most difficult things in the most volatile market environment find their welcome.” “Conditions have improved so much from where we were in October that we are seeing many companies taking advantage of this market opportunity.”

US Treasuries posted their best monthly performance in nearly four decades in November, as weaker-than-expected inflation and jobs reports fueled expectations that the Federal Reserve and the European Central Bank will start cutting interest rates from the spring of 2024., fell sharply and translated into Lower borrowing costs for businesses across the credit spectrum.

The average yield on high-quality U.S. bond issuers is now 5.52%, the lowest level since July, according to Bank of America data. Meanwhile, junk bond yields are now below 8.4%, also their lowest level since July.

“The market appears to be poised to take advantage of opportunities even at the end of the year. This is one of the most positive developments of the year,” said Mark Lynagh of BNP Paribas. “It is a great time for companies to borrow. Yields fell, bond premiums paid by corporate borrowers to issue debt fell rapidly, and investors’ appetite for risk increased.

2023 tally so far

However, 2023 is the year where uncertainty peaks. Conflicts in the Middle East and Ukraine have kept the situation at bay, with borrowers urged to act quickly. Therefore, as of now, overall Q4 volumes are not expected to be much above average due to weak October releases. Lower debt costs mean “some issuers are making a conscious decision to go ahead with targets next year,” Morgan Stanley’s Hodgson said.

After all, many companies have significant refinancing needs. For example, US investment-grade companies have $1.26 trillion of bonds maturing in the next five years, up 12 percent from the previous year, according to Moody’s data. Expirations for junk-rated issuers over the same period amount to $1.87 trillion. Dollars in bonds and loans.