The market for new bonds is rapidly gaining momentum this year: since the beginning of January, more than 80 companies and countries in the euro area have issued new bonds totaling a good 120 billion euros. It has been a long time since so many borrowers have rushed to the bond market in such a short period of time.
Demand was greater than last autumn. New bonds from, for example, Italy, the Renault car group, the utility Eon or the European rescue fund EFSF were up to three times oversubscribed.
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Interest costs have also fallen again for many issuers in recent months – they no longer have to pay quite as much for their bonds. This is especially true for companies. In October, the average return on euro bonds from companies with a good credit rating was 4.5 percent, now it’s four percent.
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The figures show that the mood has brightened not only on the stock markets but also on the bond markets. There are mutliple reasons for this. Shareholders and bondholders are hoping that inflation has peaked, that central banks will not raise interest rates quite as much and that the recession in the euro area will be less severe and in the US possibly not at all. That not only caused share prices to rise, but bond prices as well. On the other hand, yields and risk premiums fell on bonds.
This makes refinancing at least a little cheaper for borrowers. However, they still have to pay a lot more for their bonds than they did a year ago. At that time, the average return on euro bonds from companies with good credit ratings was just over half a percent.
Companies tap into the market
Companies and other debtors are now using the good mood to borrow as much money as possible. They also need that, because last year many had to postpone their refinancing plans due to the turbulent markets. According to data from the major French bank Société Générale, companies with good credit ratings issued new bonds with a volume of almost 28 billion euros in 2022. That was just over a fifth of the emissions from the previous year and as few as last in 2009.
Therefore, according to investment bankers like Marco Baldini of the British bank Barclays, companies would do well to tap the market now. Because like many analysts, Baldini still sees a “lot of uncertainty”. This means that the mood can quickly change again, which would make it more difficult and expensive for borrowers to get money from bond investors.
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However, it’s not that far yet. Investors’ willingness to take risks has hardly been broken, and the bonds of companies or riskier sovereign debtors such as Italy are benefiting from this. The stock markets were also still fairly robust on Tuesday after the brilliant start to the year.
The German leading index Dax lost 0.1 percent to 14,775 points by the end of trading. That’s little given the year-to-date increase of over six percent and the more than 20 percent increase since the end of September. Wall Street was also only slightly in the red in early trading.
As long as investors are willing to take risks, companies want to use them. Corporations such as the Swedish truck manufacturer Volvo, the South Korean car manufacturer Hyundai and the Spanish bank BBVA have announced new bonds for the next few days.
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