Corporate bond sales recover as turmoil wanes

Global corporate borrowers are returning to the US debt capital markets after sales of new bonds collapsed last week in the aftermath of a sharp sell-off in equities and a spike in volatility.

New debt offerings came to an abrupt halt last week as the S&P 500 see-sawed and US Treasury bond prices experienced sharp swings, weighing on the performance of corporate debt.

But a number of deals started to fill up the new debt issuance calendar for the week, led by large financial institutions, including Morgan Stanley and Goldman Sachs, which sold combined $6bn worth of bonds on Monday.

Smaller deals by Virginia Electric and Power, a public utility, and wine distributor Constellation Brands, were also priced.

On Tuesday, Schaeffler, the Germany-based auto components giant, offered as much as €1.2bn in new bonds in a cross-border sale that included a dollar tranche and payment-in-kind notes.

The syndicate desk at RBS Securities expects investment grade debt issuance of between $15bn and $20bn by the end of the week.

Analysts said corporate borrowers are taking advantage of a "normalisation" in global trading conditions, as well as a dip in borrowing costs. The yield on the 10-year Treasury note, which moves inversely to prices, stood at 2.18 per cent on Monday, down from 2.28 per cent one week ago.

"We are experiencing a window of relative calm after a very volatile week," said Ed Marrinan, head of credit strategy at RBS Securities.

"A lot of this week's volume will come from bond offerings that had to be postponed last week, but funding costs are still very attractive to many corporate borrowers."

After a strong start of the month, only $6.6bn worth of investment grade corporate bonds were sold last week, down from $15.2bn in week before, according to Dealogic data.

The drop in new offerings in the junk bond market was even more dramatic, with new sales totalling just $500m, compared with $12.6bn in previous week.

In spite of renewed capital markets activity and a rebound on corporate debt prices on Monday, analysts said investor' sentiment remains fragile.

Richard Gilhooly, a strategist at TD Securities, said: "Bonds kicked off the week with a timid start after last week's challenging volatility, with investors' perceptions of risk altered in a lasting manner by the violence of last Wednesday's moves."

In addition, time is running out for corporate borrowers who have yet to complete new funding rounds before markets start to slow down at the end of November ahead of the Christmas holiday season.

"Between the increased bouts of volatility and the upcoming holiday season, there's not a lot of good opportunities left for corporate borrowers, maybe just a couple of good weeks" said Mr Marrinan. "The days of this being a sellers' market are behind us."

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