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“After a relatively quiet period in bond markets, over the past three weeks we have seen a notable uptick in issuance across the board. Whether driven by expectations of a persistent high rate environment or the realisation that there is no good time to raise, we can expect to see longer-term uncertainty concerning issuers’ capital structure – particularly over whether some of their high risk debt will be called and the subsequent implications for funding and reputational risk.
“This uncertainty combined with the need to roll-over their more generic debt at far greater margins and high underlying interest rates means that the credit market is far more attractive given enhanced volatility. For investors, this means that there is a huge amount of value to be had in corporate bonds as rates keep debt yields high and investors seek safe and steady returns.
“The strength of investor sentiment in corporate bond markets is on show today, as we’re seeing the first euro-denominated AT1 deals come to market since Credit Suisse crisis with Bank of Cyprus and BBVA both issuing. Early signs in the grey market indicate strong demand with the pair trading well above reoffer – defying predictions of a mass route predicted only a few months ago.
“While broadly positive, the picture does however vary across bond markets – particularly in the commercial real estate sector where even the typically less volatile residential sector is showing signs of strain given the current economic pressures. It’s evident that the over leveraged debt-laden sectors will continue to feel the heat."
