European corporate bond issuers were in a tizzy in May and June as demand for BBB and lower paper dried up after the US Federal Reserve hinted that it might someday start to taper its bond buying program. Investors piled into cash, shortened duration and snapped up highly rated sovereigns to ride out the storm.
But last week saw a remarkable revival of the European bond market, with more than Eur7 billion of corporate issues sold, according to data from Thomson Reuters.
The crossover demand for BBB and high yield paper came with a price, however, as issuers were forced to price their bonds at a bigger discount than prior to the bond market’s collywobbles. According to Reuters, BBB issuers paid premiums of 12-20 basis points last week, where they paid 5-10 bps two months ago.
Large transactions from Continental, Fiat and Vivendi sailed through the market and one issue that had been pulled in May when the market backed up, a high yield deal from Unilab, returned successfully this time around. Overall, credit sentiment improved: the Markit iTraxx Europe Crossover Series 19 index had tightened about 20 bps over the course of the week.
That index tightened another 11 bp on July 15, heralding what might be another strong week in the European capital markets.