Happy Days for Europe's Giant Bond Sellers

(Bloomberg Opinion) -- Sellers of euro-denominated corporate bonds had their best fund-raising month for three years in June, topping off their best six months since 2012. Some 210 billion euros ($238 billion) in new company debt was snaffled up by investors between January and June, 21% higher than the same period last year.

Conditions are rarely better than this for company borrowers as benchmark sovereign bond yields keep falling and credit spreads (the difference between the interest rate on corporate bonds and the yields on those sovereign benchmarks) tighten. And there's more good news on the horizon possibly, with the European Central Bank thinking about restarting its corporate bond-buying program to help reboot the euro zone's floundering economy. Goldman Sachs Group Inc. is one of several banks to forecast a return of the ECB to the company credit market.

It's been a frenzy of issuance in 2019, with the consumer goods giants dominating at more than 40% of the total. So-called “Reverse Yankees,” where U.S. companies issue euro-denominated bonds, have featured prominently as American multinationals take advantage of record low interest rates to fund their euro-area operations. Coca-Cola Co., International Business Machines Corp. and Altria Group Inc. all did substantial deals, with nearly 50 billion euros raised this year from U.S entities. The big issuer was Medtronic Plc, a medical products supplier, which came to the market twice with jumbo deals for a total of 12 billion euros.

One other statistic stands out at the turn of Europe's corporate bond year: Nearly half of the issuance has been in maturities of longer than 10 years. As I've written regularly, there's a desperate hunt for yield and investors prefer to buy long-term debt than settle for negative returns.

No wonder there's little sign of the momentum stopping; July is looking very healthy already with eight company issuers announcing new deals on Monday.

The chance of the ECB piling in again merely adds to the sense of expectation. Between June 2016 and December 2018 the euro zone's central bank amassed 178 billion euros of investment grade euro-denominated corporates (although it avoided buying bank paper). The splurge was long-anticipated and credit spreads tightened in expectation of its arrival. 

A restart to the program – or even the hope of its return – could trigger a similar tightening this time around. If Goldman's call is correct, that might happen as early as September. This would suggest a balmy summer indeed for credit spreads.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

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

Marcus Ashworth is a Bloomberg Opinion 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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