But as sports coaches invariably say, you can only play what’s in front of you. And in this regard, the markets have risen to the occasion and adapted to their surroundings commendably.
Borrowers of all stripes continue to be active across the bond and loan markets. Indeed, those in the top few places of both the bond and loan league tables posted greater amounts than was the case the previous year.
At just what stage ‘abnormality’ becomes the ‘new normal’ is anybody’s guess – if it ever does – although there is no doubting that no matter what hurdles are placed in their way, the markets find a way of overcoming them.
When the Top 250 Borrowers year began on May 1 2015, the ECB had already been active for a couple of months with its €60bn-per-month public sector bond purchase programme – with all the distortions that created.
Along the way, the initiative was increased to €80bn, the parameters widened, and high-grade corporate debt thrown into the mix – interest rates being chipped away at all the while.
There is now virtually no corner of the European bond market that has not been impacted in some way – from sovereigns, through agencies, covered bonds and asset-backed securities, and now onto corporates.
High-yield and emerging markets credits are a couple of areas that can offer something to returns-starved investors, although the term ‘high’ is relative in such an environment.
On the other hand, the US is through its QE programme and interest rates are moving in the opposite direction, albeit not at quite the speed some had anticipated.
For buyers looking for yield, the attraction is clear to see, and a number European accounts with mandates that allowed them to do so moved into the US dollar market.
And the same was even true for some borrowers, whose euro bond curves had become so tight – especially at the short end – that issuance at home was problematic, if not nigh on impossible. For many domestic issuers, it was a just case of getting in before rates rise further.
This alignment of supply and demand consequently led to some high-volume months. In fact, seven of the 10 largest ever months ever for US dollar corporate bond volumes have come since the start of 2015.
This bodes well for the M&A market, where there is currently in excess of US$120bn of supply waiting in the wings for this calendar year – and rising. Talk is that previous estimates of US$200bn might not be out of reach.
To some extent, this bonds bonanza has been in direct contrast to the leveraged loan market. Despite a flurry of activity at the beginning of 2016 (ironically when bonds were enduring a fallow period) the year to June was disappointing and new issue volumes considerably lower than during the equivalent period of 2015.
According to Thomson Reuters data, volumes of global leveraged loans reaching financial close by the beginning of June this year were 32% lower than the figure registered in the first five months of 2015. In terms of US dollar deals, issuance was down by 25%, while in euros the drop was one of over 50%.
Investor support does not appear to be the problem, more so supply. Expectations are that deal flow will return, although volumes are unlikely to catch up with levels seen in recent years.
Even so, the underlying environment is both strong and deep, something that is mirrored in the bond market. For borrowers, it is a case of seizing the opportunities while they exist.
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