This week's debt successes showed several further positive indicators of primary market receptiveness, including Latin American supply, plans to progress Uzbekistan's dollar debut, and further corporate perpetual and high-yield sales, despite the Chinese New Year.

By contrast, equity issuance in 2019 has slumped. Some of this can be attributed to the SEC's closure, and the recent performance of US IPOs looks encouragingly strong. However, further weak PMIs for the EU suggest that tougher equity market conditions lie ahead.

Debt

On 4 February, Paraguay attracted over USD3 billion for a USD500 million 31-year deal. The issue was placed at 5.4%, versus 5.6% for a 30-year bond in 2018, and 6.1% for the same term in 2014. Its margin versus US Treasuries was 233.6 basis points, the lowest spread achieved by Paraguay to date for long-dated issuance. Additionally, Mexican non-bank lender Crédito Real sold USD400 million of 9.5% seven-year bonds, versus "high 9%" price guidance. The company claimed the deal "was oversubscribed by more than 2.5 times". Latam Airlines also priced USD600 million of seven-year bonds at 7.049%, versus initial guidance set by the Chilean carrier at 7.25%.

Uzbekistan plans to progress its debut dollar bond. It has appointed banks for a planned five or 10-year deal which it will market imminently. The country has been undertaking economic liberalisation in recent years and has enjoyed success in attracting foreign investment. IHS Markit experts view it as having far better fundamentals than regional peers such as Belarus and Takistan, justifying its stronger rating and potentially helping its market access.

Among other primary debt highlights, Spanish electricity supplier Iberdrola enjoyed clear success in the corporate perpetual market. It sought EUR500 million of perpetual debt callable after six years, increasing the deal to EUR800 million after gaining around EUR5 billion of demand, with pricing cut from an initial 3.75% to 3.25%.

Dun and Bradstreet has raised just under USD4 billion in leveraged debt from bond and loan markets. On 1 February, it announced that it had raised a USD2.5 billion syndicated loan facility, trimmed from USD3.1 billion. The loan pricing also was widened, to a 500 basis point margin versus 450 basis points initial guidance. Market practitioners noted the deal offered weak financial covenants, with the company preferring to increase its loan cost rather than offer tighter financial covenants to protect investors. It also experienced mixed success in the high-yield bond market, where it increased a secured first-lien issue from USD500 million to USD700 million, pricing it at 6.875% versus initial price talk of 7.25%: a senior unsecured issue was sold at 10.25%, raising USD750 million, downsized from USD850 million.

There were several other positive indicators. Italy gained a record EUR41 billion of demand for a 30-year EUR8 billion syndicated issue. Finland and EIB also enjoyed record demand levels for ten and five-year Euro-denominated benchmarks, while the Autonomous Community of Madrid increased a ten-year benchmark from EUR1 billion to EUR1.25 billion.

Equity

The Financial Times reported on 4 February that Refinitiv data showed that global issuance from IPOs fell 80% in volume terms versus January 2018, with the number of deals down 60%.According to Dealogic data, January 2019 activity in the EMEA IPO market dropped 60% versus January 2018, achieving its lowest issuance total since 2009. FT reports that only one European IPO was completed in January, with none in the UK. Similarly, Finance Asia reported that Asian supply reached USD2.248 billion from 32 IPO deals in January, versus USD5.435 billion from 75 transactions in January 2018.

US supply is now improving, with twelve companies having filed for deals in response to the SEC reopening. Among those seeking IPOs will be Virgin Trains USA, seeking USD538 million to help fund the extension of its high-speed line in Florida. The strong performance of the Renaissance IPO Index, up a record 18% in January, is a positive near-term indicator for US equity supply.

Outlook and Implications

This week's supply almost certainly has been reduced by the Chinese New Year, but continues to show healthy appetite in bond markets, evidenced by Paraguay's tightening of its borrowing costs and the successful reception for Iberdrola's perpetual deal, along with Italy's record demand for 30-year debt.

While bond markets seem to remain in receptive mood, we have more cautious views on the outlook for equity issuance. US supply seems to be improving, after the SEC's reopening. However, European economic prospects look relatively difficult, in turn threatening the prospects for equity-raising. IHS Markit's Eurozone Manufacturing PMI was 50.5 in January, versus 51.4 in December. This is the weakest level since November 2014, with new orders falling at the fastest rate since April 2013. Stocks of finished goods rose for the fourth month in a row, to the highest level since the PMI was first collated over 20 years ago. Our EU forecast now projects that the region's GDP growth will slow from 1.9% in 2018 to 1.2% in 2019 and 1.0% in 2020. This is clearly an unfavourable background for equity sales, as is the severe uncertainty over Brexit for UK share sales.