(Bloomberg) – The European new bond market has suffered the largest first-quarter sales slump on record as credit markets fall out of favor.
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Market volume has fallen to less than 46.2 billion euros ($50.8 billion) so far this month, after an average monthly tally of more than 170 billion euros for the first two months of the year, according to data compiled by Bloomberg. It’s the biggest drop in March sales since at least 2014, when the data first started being tracked.
Borrowers remained largely on the sidelines after Russia’s invasion of Ukraine pushed the euro funding costs of the region’s top-rated companies to their highest since the early months of the coronavirus pandemic in 2020. Their credit risk metrics also hit a level not seen in nearly two years last week.
“The prospect of interest rate hikes and the war in Ukraine have clearly reduced risk appetite,” said Barry Donlon, head of EMEA debt capital markets at UBS Investment Bank. “In Europe, we’re finding our bearings and doing it in a very traditional European way: SSAs, then covered bonds, working our way through the liability structure.”
Those who brave the market face an uncertain reception. Rail transport developer Eurofima cited volatile markets on Monday as it postponed a tap offer of existing euro green bonds after setting a final spread on the sale. Germany’s EnBW last week ended a two-part debt deal after setting final terms, while Slovakia said it could also delay a syndicated euro-note offering due to market turmoil. Marlet.
Globally, it’s a tale of two markets as U.S. corporate deals surge. A hefty $130 billion in blue-chip US corporate debt valued in the two weeks to Friday and already this week the market welcomed the deals of Anglo American Plc and British American Tobacco Plc.
“The U.S. market will continue on the path it’s on, which is good liquidity, with demand across the curve and rates settling higher,” Donlon said. UBS. “It will continue strong until Easter week.”
On Tuesday, issuance in the European primary market is again limited to higher-rated and safer deals, including covered bonds for Royal Bank of Canada and HSBC SFH. The sales will bring the March sales total to around 50 billion euros.
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Investors in Asian investment-grade dollar bonds are hurt from all sides as concerns over China’s ties to Russia collide with concerns over an impending Federal Reserve interest rate hike this week.
Spreads on Asian bonds widened by five to six basis points on Tuesday, while yield premiums on Chinese bonds climbed about 10 basis points, traders said. That leaves bond spreads in the wider Asian region on track for their biggest quarterly explosion in two years, according to a Bloomberg index.
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The U.S. investment grade debt market is booming, with March issuance already exceeding $137 billion. Seven borrowers rated $8.15 billion on Monday, including BAT and Anglo American.
It’s a different story in the region’s junk bond market, with only one bid on Monday after risk sentiment sent the market to its worst weekly loss in nearly two years.
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