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Rally fails to spark reaction from euro debt issuers

European companies have been slow to capitalise on this week’s market rally — a pause in issuing new bonds that bankers do not expect to last with borrowers set to return as the spring earnings season progresses.

There was no investment grade euro bond issuance from non-financial corporates last week as debt issuers sat on the sidelines ahead of the first round of the French presidential election on Sunday.

Victory for centrist Emmanuel Macron and Marine Le Pen, the candidate of the far-right, was followed on Monday by a sharp 6 basis point rally, to 68 basis points, in the iTraxx Main — a closely watched basket of European corporate credit default swaps.

The investment grade corporate bond market is yet to restart in earnest, however — with only a €300m, seven-year deal from Brussels Airport launched by Wednesday morning.

This pace is in stark contrast to a frenetic first quarter for euro-denominated investment grade corporate bonds when €96bn was raised, according to Dealogic, the second busiest start to the year since 2009.

“The main reason you haven’t seen this rally convert quickly into new issue volumes is to do with timing, as there are a lot of companies still going through their first-quarter earnings season,” said Marco Baldini, head of European bond syndicate for Barclays.

So-called “blackout periods” restrict companies from issuing public debt immediately ahead of their quarterly results and time is then needed to update bond documentation after fresh accounts are published.

“More and more companies are exiting blackout periods on a daily basis though, so if the market holds up like this, it should make for a busy May and June,” Mr Baldini added.

One banker added that, if most European companies were not in earnings blackout, “they’d be falling over themselves to bring deals to market”. He expected issuance to resume strongly after Monday’s UK bank holiday.

US banks, some of the earliest institutions to report first-quarter results, have already taken advantage of the buoyant European market, with Morgan Stanley raising €3.5bn in a debt sale on Monday.

European companies might also have been slow to market new bonds precisely because the first quarter was so busy.

Chris Tuffey, head of debt syndicate in the region for Credit Suisse, said: “A lot of issuance got done in the first quarter, when conditions were so strong, so there’s been a fair amount of front-loading.”

He said that, with a series of elections in prospect as well as the potential for surprises from the Trump administration, it had made sense for many companies to get funding in place early this year.

Mr Baldini also said “potential cross-border issuance — particularly from North American borrowers — could easily keep supply volumes very, very robust”.

AT&T has already scheduled meetings with European bond investors next week, according to an investor.

While the meetings are not linked to a specific deal, the investor said the expectation was for the company to raise a significant amount of euro bonds this year in support of its Time Warner buyout.

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