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Companies rushed to bond markets last month, undeterred by the war in Ukraine as they tried to lock up relatively cheap borrowing, although the March rush did not deter sales of the first quarter on the euro market to collapse to their lowest level in four years.

Global bond markets suffered immense volatility in the January-March quarter, fueled by hawkish moves by the US Federal Reserve and European Central Bank, as well as the US invasion of Ukraine. Russia on February 23. That, coupled with lower funding needs, pushed bond issuance lower across all debt categories, with data from Refinitiv showing it to be the slowest first quarter in three years.

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In the eurozone, where debt markets froze longer after the invasion, investment grade corporate fundraising was 93.6 billion euros, the worst first quarter since 2018, according to Refinitiv.

But March turned out to be the busiest month since September 2020 for sales of quality euro securities with some 43.5 billion euros raised.

The U.S. market saw its highest monthly volume on record, except during the pandemic liquidity crisis in early 2020, with $130.6 billion in sales in March. First-quarter sales, however, fell to their lowest level in three years.

“None of the unions expected it to go so well,” said Helene Jolly, head of EMEA premium corporate syndicate at Deutsche Bank, citing volatility, some bond outflows and inflationary pressures.

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The rally in issuance in March came as credit markets stabilized and risk premia, the extra yield companies pay on top of government bonds, slipped below levels seen at the start of the month. ‘invasion.

Yet borrowing costs in the Eurozone have tripled for higher quality companies this year, with the average BofA index return at 1.50%.

For issuers, “it’s that dynamic of saying yes (borrowing costs) are higher…but on a historical basis it still looks good and anyone who came in this year seemed smart pretty much immediately in terms of what rates did,” Jolly mentioned.

Some companies presented their short-term financing plans, she added.

But for companies with credit ratings below investment grade, the environment remains challenging. The euro zone saw virtually no sales of “junk” debt last month, while only $10.6 billion was raised by junk US corporations.

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Emissions fell 70% from the first quarter of 2021 in both markets, the lowest since 2016 in the United States and 2019 in the euro zone.

A positive sign for the European market awaiting reopening appeared in recent weeks when two companies with shared ratings – investment-grade and high-yield – managed to place bonds.

However, a third such company, mall owner IGD, has postponed a deal after receiving fewer applications than the amount it was originally seeking to raise, according to a senior official.

Daniel Rudnicki Schlumberger, head of EMEA leveraged finance at JPMorgan, said based on discussions with clients, he expects the European high yield market to pick up again around Easter.

“If current market conditions don’t worsen, we’re in for a period of slow issuance that will show gradual progress.”

Rudnicki Schlumberger said he expects most issuance to come from mergers and acquisitions financing, as rising borrowing costs and large issuances during the pandemic make refinancing deals less likely.

(Reporting by Yoruk Bahceli; editing by Sujata Rao and Louise Heavens)



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