Friday, July 17, 2009
Corporate bond boom forecast to taper off
By Jennifer Hughes Published: July 16 2009 19:19 Last updated: July 16 2009 19:19 The boom in European corporate bond issuance will fade as the year goes on, according to analysts at JPMorgan in a note that could help deflate talk of a permanent shift towards more bond deals. Tight bank lending and investor appetite for bonds’ relatively high yields sparked a borrowing boom this year that has taken the total issuance by European corporates past any previous full-year record. Euro-denominated issuance is also poised to beat its previous €200bn ($282.4bn) full-year record in the coming days. But JPMorgan’s credit team predicted new investment-grade paper in the second half would total €95bn – half the €189bn in the first six months of the year, according to data from Dealogic. The analysts said the first half had been boosted by financing for a handful of giant mergers and by a rush to refinance debt due in 2010 – most of which had been done. “All this leaves us with the overriding impression that second-half issuance will be driven either by second-tier borrowers or, more opportunistically, by the top tier as they continue to reconfigure their liabilities from loans to bonds,” said Stephen Dulake of JPMorgan. The slowdown in new paper could also damp the belief of some market participants that the issuance boom signalled a longer-term trend of companies switching financing from banks to the markets. European companies have traditionally relied more heavily on banks than their US counterparts, so bond markets have been smaller and less liquid than their American cousins. But this year the banks’ own struggles have pushed European companies towards the public markets. For the first time since 2002, issuance by non-financial companies outweighed issuance by the financial sector in the year to June. This in turn triggered speculation that corporate treasurers, scarred by the experiences of the crisis, would become more comfortable using bonds to spread the risks of being reliant on banks with their shorter-term lending.