City bond bankers have been surprised at the level of issuance activity since the Brexit vote
The Bank of England’s decision to hold rates, political clarity around a new UK government and strong payroll numbers in the US should all encourage activity, bankers say, leading to a decent window for new issuance that many think will keep them busy over the coming weeks.
By the end of May, borrowers in Europe had sold $ 984.8 billion worth of bonds, according to data firm Dealogic, which put the 2016 total 11% ahead of a year earlier. But activity slowed dramatically in June in the run-up to the vote, with Barclays’ co-head of DCM, Mark Lewellen, telling Financial News on June 21 that many issuers had “downed tools”.
Since the vote, however, bankers point to sovereign, supranational and agency issuers and financial institutions as sources of dealflow. Corporate borrowers, too, are still in the market: the Israeli pharmaceutical company Teva announced on July 13 that it would speak to investors in Europe and the US ahead of an expected benchmark bond in dollars, euros and Swiss francs.
At BNP Paribas, global head of debt syndicate Fred Zorzi said he was “bullish” about activity, but admitted that few bankers would have believed the markets would be so open after the Brexit vote: “Everybody has been quite surprised with the [bond] market reaction post-UK referendum, on the positive side.”
Another syndicate banker at a European bank said: “Companies are realising that funding conditions out there are not at all bad. If they really needed to do a deal, they could come in the market and even if they need to pay a slightly higher premium, it’s still a very attractive cost of funds.”
That could mean that the summer slowdown bankers usually face is shorter this time, with issuers that might have put plans on hold returning and the European Central Bank’s programme of corporate bond buying providing what one banker called “a huge boost” to demand.
Marco Baldini, head of European bond syndicate at Barclays, said: “The market conditions are relatively good and things have, on balance, turned out better than some had expected on the morning of June 24. People should look at the market and be in funding mode – as long as they can access investors during this period who are still cash rich, why wait for September? September is usually a busy time. It might be smart to try to beat the rush this year.”
BNP Paribas’ Zorzi agreed: “Is the backdrop of the market going to favour [July-August issuance]? I think the answer is yes. Personally, I’m telling issuers that the beginning of August might be open for issuance.”
UPDATE: Marco Baldini is Barclays’ head of European bond syndicate, not head of European syndicate as reported in an earlier version of this story.
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