More European Companies Test Bond Markets

Companies are debuting a record amount of bonds in Europe, encouraged by investors demanding higher yields who show greater tolerance for untested borrowers, reports Bloomberg.

The news agency says that among the companies seeking to diversify funding as banks curtail lending are Finnish insulation maker Paroc Group Oy and French car parts distributor Autodis. They are two of the 54 first-time issuers that sold €20bn (US$27bn) of notes to date this year, compared with 40 companies selling €14bn over the same period in 2013, according to Bloomberg’s data.

More than 75% of issuers were either unrated or below investment grade, with more than half of those ranked B or lower.

The increasing demand for riskier securities has prompted warnings by policy makers that easy money is encouraging investor complacency and leaving markets vulnerable to a swift reversal. Yields on company bonds in Europe slumped to lows this month after
the European Central Bank (ECB) cut its benchmark interest rate to 0.15%
on 5 June.

Bloomberg cites Bank of America Merrill Lynch (BofA Merill) index data, which shows that the average yield on investment-grade corporate bonds in euros has fallen 59 basis points this year to a record low of 1.49%. Yields on speculative-grade debt declined to a low of 3.46% in May from an unprecedented 27.8% in 2009. They have since increased to 3.61%, the data show.

“Issuers can sell anything they want and it’s getting bought,” said David Newman, the London-based head of global high yield at Rogge Global Partners, which manages $55 billion and is quoted by Bloomberg. “Worse and worse credits are coming to market.”


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