This week's market activity included heavy bank supply early in the week, amidst a growing focus on US inflation following last week's releases showed a year-on-year increase in producer prices of 6.1%, the highest rate since the series started in 2009. Additionally, consumer prices rose 0.8% month-on-month in April, the highest increase since 2009. The upward price movement was broadly based and followed a 0.6% CPI increase in the preceding month.

Other economic releases have been less positive and markets have not indicated a broader shift in sentiment, but German bond yields have risen to their highest levels since 2019, with the 10-year Bund now yielding around -0.1%, from around -0.6% at the start of 2021.

Emerging markets

Uruguay raised USD1.74 billion on 13 May from a two-tranche ten-year package comprising internationally targeted peso debt and a USD574 million tap of existing debt in US dollars. Total demand reached USD3.95 billion with 45% of interest for the peso tranche, set at USD1.166 billion equivalent.

The peso operation included the opportunity to tender existing global peso issues due in 2022 and 2028, while the dollar offering which amortizes in three equal instalments, offered exchanges and cash redemption for 2022 and 2024 outstanding debt. The domestic bond was sold at 8.25%, while the dollar issue cleared at 2.45%, 80 basis points over US Treasuries. USD500 million of the latter represented cash purchases, with the remainder sourced from exchanges of the 2022 debt. Over 100 international investors were involved.

Brazilian meat producer JBS raised USD500 million of 10-year debt at 3.75% on 14 May, with proceeds funding its EUR341 million (USD414 million) purchase of Vivera, the third-largest plant-based food manufacturer in Europe, with the residual for general corporate purposes. The company's statement noted that the deal achieved the lowest coupon for an issue by the firm.

Honduran financial group Inversiones Atlántida sold new five-year dollar debt at 7.75%, raising USD300 million in line with initial guidance. It plans to use the proceeds to redeem existing liabilities and for general purposes including acquisitions.

ESG

In the week to 14 May, nine non-Japanese Asian borrowers arranged Green or sustainability debt, in an acceleration of recent supply.

Poland's PKN ORLEN is planning a debut EUR500 million seven-year Green bond. The company's framework aims for the firm to "become the leader of the energy transformation in Central Europe". Global Capital noted that Climate Bonds Initiative had certified its program, with the potential deal gaining "dark green" status. The deal is of note in that PKN both refines oil and distributes petrol in the retail market, with its business description noting that it has the capacity to process over 35 million tonnes of crude oil products annually and runs the largest network in the CEE region of petrol stations with over 2800 in its system.

Air Liquide and Selp Finance, a Luxembourg-based real estate trust, are both marketing debut Green bond transactions.

Crédit Agricole's Taipei branch has introduced a new ESG concept, a "solidarity" bond. This is described as where the issuer, arrangers, and investors "team up to financially contribute to an environmentally and socially-friendly project". Based on the concessions made by investors and arrangers, plus a contribution to the bank, financial support will be given to Plastic Odyssey, a group seeking to reduce plastic pollution in oceans in conjunction with a TWD1.7 billion (EUR50 million) Green bond.

Other debt

Bank supply was heavy on 17 May, including (in descending volume):

EUR4 billion for Bank of America, which raised 4.25, 7.25- and 11-year debt, on a floating rate basis and at 0.583% and 1.102% respectively, 20 and 22 basis points inside initial price talk.

USD2 billion of four-year bonds at 0.976% for HSBC, 30 basis points tighter than guidance, along with USD3 billion of 11-year bonds at 1.634%, 117 basis points over comparable US treasuries, and 23 basis points inside guidance.

EUR1.5 billion of five-year debt for Credit Suisse, priced at 0.296%, 55 basis points over mid-swaps, versus price talk of a 75-80 basis points spread. It gained EUR2.8 billion of demand and sold GBP750 million of five-year bonds at 1.231%, 95 basis points over comparable gilts and 15 basis points tighter than initial guidance. Demand for the sterling tranche exceeded GBP1.6 billion.

USD1.25 billion of subordinated 10-year Tier 2 debt for National Australia Bank, priced at 2.99%, 135 basis points over UST, and 25 basis points inside guidance.

USD1 billion of three-year bonds for Nordea at 0.629%, 30 basis points over UST, and 20 basis points inside initial price talk.

On 18 May, Société Générale sold USD1 billion of Additional Tier 1 perpetual debt, priced at 4.75% until the initial call after five years and 50 basis points tighter than initial price talk.

Sub-investment grade rated Goodyear Tire & Rubber sold USD1.45 billion of eight and 10-year debt on 13 May, priced at 5% and 5.25% respectively versus guidance of 5-5.25% and 5.25-5.5%. Proceeds are to fund the acquisition of Cooper Tire.

On 1 April the firm had announced the sale of USD1 billion in aggregate of 10 and 12-year debt, priced at 5.25% and 5.625%, with the funding used to redeem the company's 5.125% 2023 issue.

Unibail-Rodamco-Westfield (URW) arranged a EUR1.25 billion two-tranche issue on 17 May. The transaction is noteworthy for having seven active bookrunners and 27 described as bookrunners in total. The company's brief statement described the deal as successful, with a seven-year five-month tranche priced with a 0.75% coupon, while 12-year debt bore a 1.375% coupon.

United Health arranged a USD7 billion acquisition bond in a five-part sale with maturities from three to 30 years. Demand reportedly reached USD27 billion.

Ryanair completed a further debt sale, a five-year Euro-denominated deal with an initial price talk of 150 basis points over mid-swaps. The deal follows the 17 May release of 2020 results showing a record EUR815 million loss after the pandemic-led cancellation of 80% of its schedule. Demand reached EUR5.2 billion.

The European Union issued a further EUR14.137 billion for its SURE facility, placing EUR8.137 billion of 0% eight-year debt and EUR6 billion of 0.75% January 2047 bonds on 18 May. Demand reached almost EUR89 billion for the package.

The following day, Finland sold a EUR3 billion syndicated 10-year deal, which it priced at 0.163%. The deal gained EUR13 billion of demand from 110 investors, with Finland's statement noting that "approximately one-third of the bond was sold to Nordic investors". Ex-Finland, Nordic buyers took 25%, with 20% sold in Benelux and France.

Equity

According to a Reuters report using Refinitiv data, a record 1054 IPOs have been completed so far in 2021, raising USD248 billion, also an unprecedented pace of supply. US supply has been dominant, with USD130 billion raised so far, of which USD88.2 billion was for SPACs. Chinese firms have raised USD39.1 billion while the UK flotation market also has been active, with USD12 billion of supply. By sector, financials led with USD110 billion, but this includes SPAC sales, while technology and healthcare deals amounted to USD40.5 billion and USD24.2 billion respectively.

This pace looks likely to slow, given recent market volatility, and the deflation of the SPAC "bubble", with SPAC sales having declined to USD3.7 billion in April from USD34.5 billion in March. Additionally, three of last week's eight slated deals were postponed, citing an adverse market environment, with the remaining calendar experiencing weak trading performance and price reductions.

Implications and outlook

Last week's US inflation data is unlikely to indicate a rapid shift in policy direction but serves as a further reminder that the prevailing yield environment is historically abnormally low, and subject to change during economic recovery after the COVID-19 pandemic. This direction was further confirmed by the FOMC minutes which suggested some members being willing to discuss tapering asset purchases in "upcoming meetings" if the economy continues to progress.

The heavy bank supply on 17 May continues the recent trend of strong supply from the sector. All five deals priced clearly inside guidance, a positive indicator of demand. However, the range of issuance does suggest that banks are moving to finance themselves promptly against a background where economic recovery and potentially stronger inflation threaten a higher rate environment.

Posted 20 May 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence