March 12, 2015 / 11:07 AM / 2 years ago

COMMENT: Eye-catching bonds overturn old order

LONDON, March 12 (IFR) - It is perhaps a moot point to wonder which is the more eye-catching: Gaz de France issuing the first vanilla bond with a zero coupon or US pharmaceuticals company, Actavis, on the brink of junk ratings, raising US$21bn in the face of US$90bn of orders without even feeling the need to include step-up covenants. Either way, of late it is hard to ignore the feeling that the old order has been overturned and the current environment continues to throw up what would have been market-stopping events with such regularity that one investor spoke of people becoming desensitised. It was less than two years ago that Apple caused a collective intake of breath when it unleashed its US$17bn multi-trancher. Fast forward five months to September and Verizon's US$49bn trade gave a glimpse of just what the bond markets could offer. While the clocks may not exactly have stopped and the telephones were certainly still connected (with apologies to WH Auden), these were events that were quite awe-inspiring. But things move on apace in the debt world. Last week's US$21bn debt raising by Actavis, while the talk of the town and much anticipated, became just one piece in a multi-billion dollar jigsaw, as borrowers jumped in before, during and after. Exxon Mobil, for example, sold US$8bn of paper on the same day as Actavis in a deal that was increased from initial indications, and a number of other multi-tranche trades followed in its wake.

Last week, volume in the US credit market surged through the US$50bn mark - with a slug of public sector supply to boot - to make for the second busiest week on record. The borrowing - especially active in the medical/pharma complex - shows no signs of slowing yet, with Zimmer grabbing the spotlight on Tuesday with a US$7.65bn seven-parter, while AbbVie is expected to finance its US$21bn acquisition of Pharmacyclics soon. While not quite of the same magnitude as the US market, the story has been much the same in Europe, where one noteworthy transaction after another has hit the screens across asset classes.

And from a funding perspective, a low rate, low spread environment is a difficult combination to resist. In a QE world where investors find themselves having to pay public sector issuers for the pleasure of buying their paper, any sort of return is better than none - the discounted reoffer price made for a whole 0.13% yield on GDF's two-year trade. From huge deals to minimal returns, nothing gets in the way of the market steamroller nowadays, it seems. Add to that ZKB's negative yield Swiss franc offering - the first such new issue rather than tap in that market, but certainly not the last - and it is difficult to know what constitutes a line in the sand any more.

The outlook for fixed income is ambivalent - the bond market has almost no memory of where it was and seems to have a faulty sense of direction on where it should head. (Editing by Alex Chambers, Luzette Strauss)

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