(Bloomberg) — Bond sales in Europe have set a new record for January.
Offerings from the European Union and United Kingdom on Tuesday pushed the month’s deal tally to the equivalent of at least €293.7 billion ($319 billion), according to data compiled by Bloomberg. That beats a previous record of €292.7 billion set last January, with the final total likely to rise after KommuneKredit Denmark and Canada’s Province of Ontario joined the list of borrowers lining up new deals for the coming days.
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January is always among the busiest months in the debt sales calendar — coming between a seasonal Christmas slowdown and earnings season-related blackouts, when companies are unable to do deals. But this year is especially busy as borrowers seek to capitalize on investor appetite to put beefed-up cash piles to work and lock in attractive yields before central banks start cutting rates.
“There’s this rush to make sure you’re involved in the supply that’s coming in the first few weeks of the year,” because of upcoming blackouts, said Fabianna Del Canto, co-head of capital markets for EMEA at MUFG. It doesn’t serve investors well to “sit with cash uninvested through all of February or chasing secondary paper in small clips,” she added.
Sovereigns have led the bonanza, with the biggest sales including €15 billion deals from both Italy and Spain, while the European Union raised €8 billion on Tuesday. Borrowers are likely front-loading 2024 funding plans to get ahead of potential volatility later in the year. The timing and magnitude of central bank interest rate cuts, geopolitical events and key elections — including in the US and potentially the UK — are all on investors’ radars for 2024.
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Henrietta Pacquement, head of global fixed income and sustainability at Allspring Global Investments, said that issuance so far has been well absorbed by the market. “There is a pile of cash on the sidelines that provides a buffer for both government and corporate borrowers, so we’re not concerned about the amount of issuance,” she said, adding that Allspring was “being selective.”
Records have been set on the demand side in January too, with investor orders for this year’s euro, pound and Reg S dollar-denominated debt sales reaching €1 trillion in record time. Investors have been tempted by attractive yields, with euro corporate notes on average yielding about 3.8%, according to a Bloomberg index of the notes. Spreads have narrowed on about 84% of this month’s new deals since pricing.
Some believe the strong momentum will last a little while longer, with the year’s big risk events not likely to surface until well into the second half.
“The syndication season has kicked off in high gear, but deals should continue to flow in the first quarter as issuers aim to front load issuance and benefit from strong investor demand,” Societe Generale SA strategist Ninon Bachet wrote in a note last week.
At least seven borrowers are expected to price deals in Europe’s publicly-syndicated debt market on Wednesday, including Muenchener Hypothekenbank eG and Bayerische Landesbank.
—With assistance from Alice Gledhill and Paul Cohen.
