Volvo showed that investors are keen to put cash to work in the euro investment-grade corporate market, despite the time of year, after making an opportunistic visit on Thursday.
The Swedish manufacturer's €500m no-grow five-year note ended a six-session streak of no supply, since Saint-Gobain and SELP took advantage of a firmer credit backdrop to print deals on August 2. Both of those deals have performed well in the aftermarket, tightening by more than 10bp from reoffer, according to Tradeweb.
With credit markets in as good shape as they have been for months, the timing made sense for Volvo (A2/A–).
"It takes a bit of courage to come to the market this time of the year but the response tells you that it's the right decision - the deal priced at very competitive levels with an excellent order book," said a lead.
The book was more than €3bn at guidance, which helped the leads, Citigroup, Societe Generale and Mizuho, to tighten pricing from an initial 85bp area over swaps to plus 53bp.
A syndicate banker away from the deal saw fair value at 45bp, but said paying up by up to 10bp would be a "decent outcome". Comparables for the new issue included Volvo's 1.625% May 2025s and 0% May 2026s that were bid at i-spreads of 26bp and 40bp, respectively, according to leads. One lead put fair value at 50bp-55bp.
The syndicate banker away said: "Spreads will not tighten from here, so it's not losing any upside by coming now. Cash positions are also good, with good demand seen in the secondary for better names."
The average spread for euro corporate senior debt was 97bp on Wednesday, significantly down from this year's peak of over 130bp on July 1, according to iBoxx. Still, the level is wider than the 55bp mark at the start of the year.
"It's an opportunistic trade – the issuer doesn't need the funding and appreciated the constructive market," said a second lead.
Battle lines
Despite Volvo's success, bankers are not expecting much supply until the final full week of August.
"Would I send someone to battle next week? I'd like to think one or two issuers could come, but generally things unfold in the week afterwards," said the second lead.
This year, the last week of August could be busier than usual, assuming conditions stay stable, given the paucity of supply in recent weeks.
July sales in the euro investment-grade corporate market were the lowest ever for the month, based on IFR's records going back to 2013.
Volvo's bonds were priced via wholly-owned subsidiary Volvo Treasury, which had already tapped the euro market twice this year, in May and February, to raise a combined €1bn from bonds that are both due in 2025.