Carney Plan Shows Early Success as Corporate Bond Sales Jump

Updated on
  • Bank of England bond-buying plan intended to spur investment
  • Yields on sterling bonds fell to record low this month

Mark Carney’s plan to buy corporate bonds is already transforming the sterling debt market, with August the busiest month for U.K. company issuance in two years.

BP Plc and HSBC Holdings Plc are among eight U.K. companies that have sold 5.6 billion pounds ($7.4 billion) of notes this month, according to data compiled by Bloomberg. Vodafone Group Plc sold the longest-dated corporate bonds in pounds this year, while property company Places For People Homes Ltd. had its largest-ever sale of sterling debt.

Companies are rushing to take advantage of near-record-low borrowing costs, helped by measures designed to stimulate Britain’s economy after the nation voted to exit the European Union. The Bank of England cut interest rates on Aug. 4 and said it will start buying investment-grade corporate debt in September.

“Conditions are set for a very attractive environment for companies to borrow,” said Chris Bowie, a London-based money manager at TwentyFour Asset Management, which oversees about $9 billion. “From what we’ve heard, there are quite a few deals in the pipeline for September.”

The BOE plans to buy 10 billion pounds of corporate bonds with at least one investment-grade rating. The program will run over 18 months, implying a monthly purchase rate of about 550 million pounds.

To read about the Bank of England’s corporate-bond purchase program, click here.

The average yield on investment-grade bonds in pounds dropped to a record low of 2.1 percent on Aug. 10 and is now at 2.2 percent, according to Bank of America Merrill Lynch index data. Junk-rated companies are also benefiting, with average yields falling to a one-year low of 6.2 percent, the data show.

It’s not yet clear if lower borrowing costs can boost the U.K. economy. Companies including Burberry Group Plc and Ryanair Holdings Plc have put off investment decisions, citing Brexit concerns.

“Cutting funding costs doesn’t necessarily mean that people will begin increasing capital spending,” said Duane Elgey, Societe General SA syndicate director in London. “The knock-on impact of the corporate-bond buying program to the economy is quite a slow transmission.”

Companies based outside the U.K. are also taking advantage of low sterling rates, contributing to a total 7.6 billion pounds of issuance this month, the most in two years, according to data compiled by Bloomberg. Issuers this month included BMW AG and Credit Suisse Group AG, the data show.

“The number of deals we’ve seen is quite impressive,” said Zoso Davies, a credit strategist at Barclays Plc in London. “Sterling is now more competitive as a funding currency for corporates and we also have investors willing to take on more sterling assets.”