It's Risk-On for Bond Borrowers Feeding Pre-Holiday Appetites

  • Europeans raise 15 billion euros before Thanksgiving
  • This week and next are window of opportunity: RBC’s Schaffrik

Corporate borrowers are wasting no time waiting for the dust to settle on a junk-bond selloff that shook global markets this month.

Companies have sold more than 15 billion euros ($17.7 billion) of new bonds so far this week, with Tuesday’s volumes the second highest for November. Nordea Bank AB knocked about 50 basis points off initial guidance on the yield on a contingent convertible bond, while Renault SA and high-yield dollar issuer Williams Scotsman International Inc. also priced at a premium.

A rebound in risk appetite has increased the sense of urgency for borrowers as primary markets downshift before Thanksgiving on Thursday and in the run-up to Christmas. Sentiment in credit markets has turned around, taking the cue from rallying stocks. Funding costs are heading back down after average yields in speculative-grade indexes spiked about 40 basis points this month.

“The selloff caught a lot of attention but in the great scheme of things it was modest,” said Peter Schaffrik, global macro strategist at RBC Europe Ltd. in London. “This week and next week are a window of opportunity for borrowers.”

Global exchange-traded funds that track non-investment grade obligations took in more than $600 million on Monday and Tuesday, according to data compiled by Bloomberg. Investors are returning to the sector after the biggest outflows in almost two years last week from mutual and passive funds.

The strong demand suggests investors are willing to put cash to work in a season often marked by aversion to risks that could sully year-end returns, according to Suki Mann, an independent credit analyst.

“In credit for sure, we have exceeded the most bullish of expectations,” Mann said in a research note. “How this market makes money when we reset the tiller to zero come January is anyone’s guess, but for now, the cash is flowing in and looks for a home in what has been an extremely accommodative November primary market.”

— With assistance by Hannah Benjamin, and Randall Jensen

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