LONDON: The European bond market cranked back into action on Wednesday, putting an end to almost a week of no supply as issuers made the most of the better tone to raise new financing.
New issues from public sector, corporate and ABS borrowers have been met with an enthusiastic response from investors even though volatility remains high after the UK voted to leave the EU in last week's referendum. Financial issuers are notable in their absence however, with bankers saying it was too early for a reopening.
The German state of Hessen found just short of 1.3bn of demand for a 875m trade, the biggest of the day, that was initially meant to be a 250m tap of its July 2026 bonds.
As a result, lead managers Deka, Deutsche Bank, DZ, Helaba and UniCredit tightened pricing from the less 5bp area IPTs for less 7bp "That's one of the biggest books we've seen for a deal of this kind," said one SSA banker away from the deal.
"It helps that there's no other paper out there and there would be a huge domestic bid, but it also does show that Brexit wasn't a Lehman Brothers moment or like the sovereign debt crisis [of 2011]."
US-based Molson Coors, which sold a US$5.3bn four-part bond and a two-part C$1bn trade on Tuesday, began marketing an eight-year euro benchmark at mid-swaps plus 145bp area IPTs.
It was tightened to mid-swaps plus 115-120bp. "A lot of the volatility is UK-specific so Molson is largely isolated from this, and while there is a global impact, spreads on comparable credits such as Mondelez and Heineken haven't been too badly impacted," a banker said.
Heineken Dec 2024s were bid at 55bp over mid-swaps, from plus 51bp at Thursday's close before the referendum results were known. Bank of America Merrill Lynch (B&D), Citigroup and UBS are leads. Molson Coors is rated Baa3/BBB- by Moody's and S&P.
ECB LENDS HELPING HAND
Mercedes-Benz Bank is also in the market for about a 1bn German auto loans trade on Wednesday, reopening the ABS market just three days after the vote.
The German group's Silver Arrow Compartment 7 is expected to price the bond by the end of the week.
The price talk on the deal was in line with the ultra-tight levels seen in the asset class before the Brexit vote, which were driven by a fierce bid for paper from both real-money euro buyers and the ECB.
The central bank is expected to buy the Silver Arrow deal, which is eligible for its asset-backed securities purchase programme, sources said.
Societe Generale is sole arranger and joint lead together with UniCredit. Co-managers are BNP Paribas, DZ Bank and Landesbank Baden-W?rttemberg.
TOO EARLY FOR FIG
The reopening of the public sector and corporate markets were not quite enough to cheer FIG bankers, however, who are still waiting to see a primary trade from a financial institution.
"There is demand for bonds in secondary but we've have had quite a bit of a repricing and that always tends to cause a stalemate until we either see a retracement or issuers adjust to new levels. I don't think we will get anything this week.
I would say next week is the earliest and it will be a safe trade from a jurisdiction not hit by market jitters," said a FIG syndicate banker.
UK and peripheral banks have been the hardest hit by the UK referendum though they have staged a recovery as markets have stabilised. Indices have also retraced some of their lost ground. The Senior Financial index is almost 10bp tighter than Tuesday while the Subordinated Financial has tightened by 17bp.
"We need to see stock prices recover, a lot of bank stocks have been totally smoked which makes it tricky.
The problem is that we've wondered back into an environment where we are at the mercy of the political space and that's when everything gets super messy," said a second FIG syndicate banker.
Financial issuers have not issued anything since June 15, the slowest pace of issuance in 2016 according to IFR data.
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