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The Yield Rush

16 May 2017 by lberuti

The primary market is in full swing at the moment. Every single issuer you can think of is tapping the market, and tries to lock interest rates at current low levels. Sovereigns and corporates, investment grade, cross over and high yield companies… everyone is joining the party. At the safest end, France and the UK issued long dated bonds trying to lure investors with the extra yield offered by their 30y and 40y bonds. Ah the riskiest end, RALFP ( Rallye SA ) issued a 5.5y bond trying to lure investors with the extra yield of a non-rated company. In every case, the result was an overwhelming demand. The UK and France were said to have drawn demand of more than GPB26Bln and €31Bln respectively for their deals, which were subsequently upsized to GBP5Bln and €7Bln. RALFP attracted more than €2.4Bln during the book building process of its €350m deal. It enabled the company to reduce the coupon from an initial 5% indication to the final 4.375% pricing. The original yield whisper led investors to push RALFP’s 5-year risk premium 37bps yesterday. Today, the actual pricing send it another 57bps tighter at 605bps. It has never been so cheap to buy insurance against a default of RALFP over the last 18 months.