Morgan Stanley missed estimates, Spain’s borrowing cost shot above 7 percent, US companies are missing revenue (if not earnings) projections – the credit markets should be cratering, right? But they’re not. In fact, on July 19, the day much of this news hit the wires, the iTraxx Europe index tightened 3 basis points tighter, to 160.5bps, its tightest level since July 4, according to MarkIt.
That’s good news for credit portfolio managers and borrowers alike. Many companies have been planning to push capital raising plans back, or already pulled them forward, to avoid the summer months, when much of the Eurozone crisis bailout situation will need to be sorted out.
But even in the secondary market, volumes are more or less normal. Companies like eBay have successfully launched $3 billion-plus offerings into the syndicated loan market. Even a collapse in banks’ proprietary trading revenues, witnessed even at august Goldman Sachs, has failed to brake the market’s momentum.
Investors looking for yield without straying overseas too much are driving a lot of the demand, one banker said. With banks and sovereigns in Europe on the ropes, there’s a lot of demand sloshing around that is being channeled into the investment grade loan market, he said. But volatility remains high; corporates seeking to strike while the iron is hot and issue new debt should not wait too long.