Feast-or-Famine Credit Markets Lure Bargain Hunters to New Sales

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(Bloomberg) — Credit investors are scoring some of the highest new issue concessions in years. That’s because companies that seize the occasional window for bond offerings are competing to entice buyers who want to be compensated for a growing list of risks. 

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The average extra yield that non-financial companies in Europe are paying on new sales is at its highest level since June 2024, according to data compiled by Bloomberg. In the US, these concessions more than doubled in March compared to the prior month.

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Adding sweeteners is becoming imperative for companies to attract buyers, especially as they have to compete with other borrowers on days when risk sentiment is strong enough to allow bond issuance to resume. The dynamic is turning into a money-maker for investors already having to navigate the disruption of artificial intelligence and the prospect of higher inflation, fueled by the energy crisis.

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Joost de Graaf, co-head of the credit team at Van Lanschot Kempen Investment Management NV, has been one of the money managers looking to lock in value from newly sold notes.

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“Luckily the primary market has been open for most of the widening and there you see that new issue premiums that need to be paid are clearly going up,” de Graaf said in an interview.

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This week, some bonds showed a “significant new issue premium that we haven’t seen for quite some time. So we’re quite happy with that and we’re taking advantage of such bonds when they are being offered,” he added.

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New issue concessions are the extra yield over the same borrowers’ existing debt. They’re currently rising so much in the US and Europe primarily because risk is increasing across the market as a whole.

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“Too Many Bonds”

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The last time concessions were this high in Europe, French President Emmanuel Macron’s decision to call a snap election had sent the country’s sovereign and corporate debt into a tailspin, prompting new issues from local borrowers to come with large giveaways.

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For Kshitij Sinha, a fixed income fund manager at Canada Life Asset Management, “the most interesting” new deal was a €650 million ($750 million) note sold by Australia Pacific Airports Melbourne Pty Ltd earlier this week, which he said came with a five to 10 basis point concession.

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With more trading days likely to be written off as a result of the war in Iran, companies have been seen rushing back to the market whenever they can. The unpredictable supply volumes prompted TD Securities’ US credit strategist Hans Mikkelsen to write in a note there are “too many bonds chasing too little money.” 

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More than a third of March’s business days have featured no high-grade deals at all in the US, based on data compiled by Bloomberg. It’s a similar picture in the European market.

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In Europe, each day the new issue market is shut creates an additional need of €2.7 billion of refinancing, according to estimates by Barclays Plc analysts. There were no new corporate bond issues in Europe or the US on Thursday as a surge in energy prices threw the global bond market into a tailspin.