(Bloomberg) — European bond issuance this year has topped the €1 trillion ($1.1 trillion) mark more than a week before the previous record.
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Issuance in the region’s publicly-syndicated debt market reached the milestone on Wednesday, boosted by a €10 billion sale from Spain, according to data compiled by Bloomberg. It beats a record set on June 9, 2020, when governments and companies were beefing up their balance sheets in the early months of the pandemic.
Just under half of the debt sold this year has come from supranationals, sovereigns and agencies making the most of buoyant investor demand for their debt. But there’s also been a rush of US firms looking to take advantage of a growing gap in yields as the European Central Bank gears up for monetary easing as soon as next month, while the Federal Reserve is expected to hold interest rates steady.
“Issuers have been keen to lock in funding at relatively tight spreads,” said Marc Lewell, head of EMEA and APAC syndicate at JPMorgan Chase & Co. “US issuer supply has definitely picked up over the course of 2024.”
Corporates such as Merck & Co. Inc and Coca-Cola Co. have made the most of spreads dropping close to the lowest level since early 2022 to raise longer-dated debt. Numbers have also been supported by the return of merger and acquisition financing with bumper, multi-tranche deals from Swisscom Ltd and Johnson & Johnson.
Read more: Merck Offers Longest Euro Corporate Bond Deal Since 2021
“While spreads remain so tight and investor reception remains so strong, market dynamics remain very compelling, driving the surge in supply,” said Fabianna Del Canto, co head of EMEA capital markets at MUFG. “With many uncertainties around year end, issuers have learned to really seize every opportunity and fund while the market is hot.”
Seventeen borrowers are in the market on Wednesday, including U.S. medical-device maker Medtronic Inc, Spanish lender Banco Bilbao Vizcaya Argentaria and French luxury goods maker LVMH. Once all Wednesday deals are priced, the year to date total will reach €1.013 trillion, the data show, which captures publicly syndicated issuance of euro, sterling and Reg S dollar-denominated offerings.
The deals are being met with strong demand from investors who have been pouring cash into fixed-income funds. Although spreads are tight, yields are high relative to the past two decades. Spain’s deal had an order book of over €125 billion, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.
Still, Nicolas Trindade, a senior portfolio manager at Axa Investment Managers, cautioned against excess exuberance because inflation could still surprise to the upside, derailing monetary easing.
“Investors should not get greedy in an environment like this,” Trindade said. “We favor investment grade bonds where fundamentals remain solid and the default risk is much lower to capture attractive yield opportunities.”
–With assistance from Paul Cohen.
(Updates with additional details throughout)
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