Global Credit Markets Stumble in One of This Year’s Worst Weeks
(Bloomberg) — Corporate borrowing costs and gauges of credit risk rose around the world after Federal Reserve Chair Jerome Powell stopped short of detailing how he might tamp down a spike in rates.The Markit CDX North American Investment Grade Index, which investors use to hedge against losses on company notes, widened to a four-month high. Equivalent European measures for both investment-grade and high-yield corporate debt rose for the third consecutive day to the highest in about a week.Sentiment soured after Powell told a Wall Street Journal webinar that the recent run-up in yields was notable, but declined to be drawn on what tools might be used if disorderly conditions or any persistent tightening in financial conditions threatened the Fed’s goals. With energy prices rising and Covid-19 vaccines fueling bets that an economic rebound will spur inflation, financing costs have started to bounce back from recent lows.“We will probably continue to see rates rising but inflation expectations are not going to spike,” Henrik Johnsson, global co-head of capital markets at Deutsche Bank AG, said in a Bloomberg TV interview. “We won’t see the Fed taper based on this inflation spike. They won’t panic they will wait for real demand to come back.”Still, the impact of recent volatility is already being felt in Asia’s primary markets for raising new debt. Two state-owned firms in India withdrew planned rupee note sales on Thursday and at least three Japanese companies have put off yen debt offerings in recent days.In Europe, issuance remains robust for now, and notwithstanding recent bouts of turmoil, selling bonds remains cheaper than it was at the beginning of the coronavirus crisis.Companies and governments have sold over 407 billion euros ($487 billion) of bonds so far this year, the region’s fastest pace of issuance ever, according to data compiled by Bloomberg.“Issuers want to take advantage of this supportive environment provided by the central banks, before the market starts to anticipate tapering,” said James Cunniffe, director for corporate syndicate at HSBC Holdings Plc. “As we enter the second quarter, we expect to see a more normalized level of supply reverting back to previous years’ volumes.”EuropeBooming ethical debt sales have increased the market share of green, social and sustainability debt to 17% of this year’s syndicated debt volumes, from around 7% a year earlier.The much maligned London interbank offered rate is finally within sight of retirement after the U.K. Financial Conduct Authority confirmed that the final readings for most rates will take place on Dec. 31The Republic of Italy’s debut green bond was the most-subscribed deal in Europe’s primary market this week, according to data analyzed by BloombergAsiaThe cost to insure investment-grade bonds in Asia, excluding Japan, is poised to rise for a second straight day, while high-yield bond prices are falling for a third.“Inflation is likely to rise sharply in developed and emerging markets in the coming months on unfavorable base effects and higher commodity prices,” said Michael Biggs, macro strategist and investment manager at GAM in London. “We do not think the rise in inflation will be sustained, but it could scare the market”China’s Ji’an Chengtou Holding Group was the sole borrower marketing a dollar bond on FridayCombined with relatively lower liquidity versus investment grade and potential outflows, Asia high yield is ripe for a correction, according to Ek Pon Tay, a senior portfolio manager for emerging market debt at BNP Paribas Asset ManagementIn mainland China, a recent jump in defaults has led investors to favor safer assets, which is being reflected in smaller risk premiums for local-currency top-rated corporate bondsU.S.Seven high-grade corporate bond deals hit the market on Thursday, including one from Nissan Motor Acceptance Corp., a unit of Nissan Motor Co. Ltd.Mall owner Washington Prime Group Inc. is preparing a potential bankruptcy filing as time runs out to avert a default after it skipped an interest payment on its debt, according to people with knowledge of the plansApollo Global Management has obtained about $4 billion of debt commitments from banks to fund its leveraged buyout of crafting supplies retailer Michaels Cos., according to people with knowledge of the matterFor deal updates, click here for the New Issue MonitorFor more, click here for the Credit Daybook AmericasFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.