Investment Grade Market – Market observations per 30 June 2023 –

EMEA IG loan volume falls between Q1 2022 and Q1 2023

• European IG issuances fall around 38% in Q1 ’23 compared to the previous year with the significant fall in Q4 ’22 and Q1 ’23 resulting in much of the discrepancy.
• The war in the Ukraine followed by inflationary pressures and tightening monetary policy result in higher borrowing costs and few suitable windows for issuances for IG corporates. Additional uncertainty in the market occurred with the collapse of SVB and the sale of Credit Suisse in Mar ’23.
• Pricing loans has proved difficult with limited deals for benchmarking making pricing information scarce, this has been exacerbated by low liquidity availability from investors only pushing the total cost of borrowing higher.
• A drive towards private financing may result in an increased number of IG deals remaining unreported to the market.

Consistent tightening of post launch spreads

• Approximately 70% of October’s IG corporate new issuances quote tighter after launch, this is largely in line with the post launch performance of corporate new issuances year to date.
• Consistent tightening of spreads may result from the increased liquidity in the secondary market compared to the liquidity available to new issuances. Hesitation to underwrite deals may be a factor forcing corporates to accept significant new issue premia to induce underwriters.

Cost of borrowing increases further

• Eurozone IG credit default swap (CDS) spreads continued to decrease slightly since the small temporary increase in early Mar ’23, following the collapse of SVB and the sale of Credit Suisse resulting in turmoil in the banking world.
• EUR 5y IRS’s experience an increase of 20 bps since Mar ’23, being impacted significantly by the ECB rate rises and expectations of future changes in the cost of borrowing.
• The combination of IRS and the CDS spread (a proxy for total cost of borrowing) has slightly increased since Mar ‘23 without breaching the highs of mid Oct ’22. Treasurers may have been rewarded with up to 90 bps savings for delaying the fixing of interest rates to favourable periods.
• 3M Euribor has continued its rapid rise since early Sep ’22, the cost of borrowing for corporates with payments based on this floating rate has already increased by 150 bps this year.