(Bloomberg) -- Europe's market for new bonds has suffered the sharpest collapse in first-quarter sales on record as credit markets fall out of favor.
Marketwide volume slumped to less than 46.2 billion euros ($50.8 billion) so far this month, trailing an average monthly tally of more than 170 billion euros for the first two months of the year, according to data compiled by Bloomberg. That's the sharpest drop-off in March sales since at least 2014, when the data first started being tracked.
Borrowers have largely stayed on the sidelines after Russia's invasion of Ukraine pushed euro funding costs for the region's best-rated firms to the highest since the early months of the coronavirus pandemic in 2020. Measures of their credit risk also reached a level not seen in nearly two years last week.
“The prospect of interest rates hikes and the war in Ukraine clearly has been reducing risk appetite,” said Barry Donlon, UBS Investment Bank's head of EMEA debt capital markets. “In Europe, we are finding our feet and doing it in a very traditional European way: SSAs, then covered bonds, working our way through the liability structure.”
Those that are braving the market are facing an uncertain reception. Rail transport developer Eurofima on Monday cited volatile markets as it postponed a tap offering of existing euro green bonds after setting a final spread on the sale. Last week, Germany's EnBW halted a euro two-part debt deal after setting final terms, while Slovakia said it too could delay a syndicated euro note offering because of market turmoil.
Globally, it's a tale of two markets as U.S. corporate deals steam ahead. A hefty $130 billion of high-grade U.S. company debt priced in the two weeks to Friday and already this week the market has welcomed deals from Anglo American Plc and British American Tobacco Plc.
“The U.S. market will continue on the track that it's on, which is good liquidity, with demand across the curve and rates settling in at a higher level,” UBS's Donlon said. “That will continue strong all the way up to the Easter week.”
EMEA
Issuance in Europe's primary market is again limited to higher-rated, safer deals on Tuesday, including covered bonds for Royal Bank of Canada and HSBC SFH. The sales will bring March's sales tally to about 50 billion euros.
- Russian social network operator VK Co. Ltd. may lack the cash to redeem its convertible bond and will start talks with bondholders to find alternative options, according to a filing on Tuesday
- Germany is preparing to boost the supply of a scarce bond entangled in Russian sanctions, a move that will likely ease pockets of tension in European repo markets
- The war in Ukraine has driven investors back to cash, with allocations at the highest since April 2020, according to BofA's March global fund manager survey
- Swedish property developer Oscar Properties plans to “increase its exposure to green financing,” according to the company's updated financial targets
Asia
Investors in Asian investment-grade dollar bonds are getting hit on all sides as worries about China's ties with Russia run into concerns about a looming Federal Reserve interest-rate liftoff this week.
- Spreads on the Asian bonds widened by five to six basis points on Tuesday, while yield premiums on Chinese notes climbed by about 10 basis points, according to traders. That leaves spreads on bonds from the broader Asian region on track for their biggest blowout for any quarter in two years, according to a Bloomberg index
- Chinese developer shares are dropping the most in more than a decade as a rout in the nation's equity market hits the troubled real estate sector especially hard
Americas
The U.S. high-grade debt market is booming, with March issuance already exceeding $137 billion. Seven borrowers priced $8.15 billion on Monday, including BAT and Anglo American.
- It's a different story in the region's market for junk bonds, with just one offering on Monday after risk-off sentiment sent the market to its worst weekly loss in nearly two years
- Weekly supply is likely to be front-loaded ahead of the highly-anticipated March FOMC meeting Wednesday
- Puerto Rico's record bankruptcy is nearing the end as it's set to cut $22 billion of debt, a crucial step that aims to help the commonwealth boost its economy and repair its finances
©2022 Bloomberg L.P.
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