Markets

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

The post-election rally has thrown open a window for corporate fundraising. It may not stay that way for long.

Some of the market angst around Donald Trump's surprise White House victory was brief. Equities have surged. Measures of volatility have tumbled, and that is propitious for fundraising.

That Was a Big Deal
Volatility's snapped back after the shock of the U.S. election result
Source: Bloomberg

However, longer-dated bonds are in for some long-term pain, and it shows.

Get it While it Lasts
Yield pickup suggests corporate borrowing is only going to get more expensive
Source: Bloomberg

These dynamics coincide with a pent-up supply of stock issuance, in particular in Brexit-hit European markets. It looks like a similar story in the credit markets. The fourth quarter is usually a bonanza for issuance but corporate treasurers have limited their participation as liquidity dried up.

Companies needing funds will want to exploit these surprisingly benign conditions while they can. The same will go for private-equity firms looking to sell down recent IPOs.

Stock investors who were sitting on big cash balances will be desperate for ways to catch up with the rally and primed to buy any placing offered at a discount. And if the initial reaction to the Trump victory was for benchmark government bond yields to head higher, it may not be too long before credit spreads start heading that way too.

Pretty Stable, for Now
Credit-default swaps on European high-yield debt show investors haven't soured on credit risk
Source: Markit

The European Central Bank's bond-buying program has kept corporate bonds spreads stable, but that may be deceptive. The ECB could say at its December meeting that bond purchases won't be fully extended at the same pace beyond March. Even if tapering starts later, the prospect of gradually stepping back from the program at some point is real. That could see spreads widen. Issuers will want to move before that happens.

Contrast this with the aftermath of Brexit. Stocks collapsed and were still down a week later. Issuers had to swallow low prices to get shares sold: Abertis Infraestructuras SA succeeded in shifting 814 million euros ($900 million) of new shares five days after the vote, but at a 9 percent discount.

Braving Brexit
Some sizeable European secondary share sales got done in the month after the June 23 referendum, though some, such as Abertis, had to offer a big discount
Source: Bloomberg

The current conditions may not last. The obvious threat is a rise in volatility ahead of the Italian referendum on constitutional reform on Dec. 4, with the plebiscite widely seen as a confidence vote in premier Matteo Renzi. The ECB meets a fews days later.

For now, the window is open. Time to jump through it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Chris Hughes in London at chughes89@bloomberg.net
Marcus Ashworth in London at mashworth4@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net