Global corporate bond issuance has plummeted and the pace of equity fundraising has eased as corporate treasurers and investors wait out the market tumult created by Russia’s invasion of Ukraine.
Companies around the world had raised around $60bn through bonds for the week to Thursday, down from more than $125bn in the prior full week and a year to date average of almost $100bn, according to data from Refinitiv. Euro and US dollar denominated deals contributed less than half of the total.
Bond issuance got off to a slower start this year as choppy markets spooked by high inflation kept issuers on the sidelines. But the latest dearth of new issuance has come as treasurers and traders sit on the sidelines, rattled by geopolitical turmoil as Russia ramps up its offensive in Ukraine.
The drop has been particularly noticeable for lower-rated, “high-yield” debt. Twitter is the only high-yield company in the world to come to market so far this week, according to Refinitiv, raising $1bn on Wednesday. A second high-yield bond deal announced by nutrition products group Bellring on Tuesday was pulled two days later due to “market volatility”.
“It’s been incredibly volatile for the past few weeks,” said Marco Baldini, head of European bond syndicate at Barclays. “You have these small windows when you can get into the market and get a deal done . . . Now that you have a military conflict unfolding in Ukraine it’s going to make it even harder.”
Spanish water management company FCC Aqualia had planned to issue a two-part green bond last week but decided to postpone due to market conditions, according to people familiar with the deal.
This week, a handful of companies decided to hold-off issuing bonds at morning “go-no-go” calls with bankers.
Those declines come as the flow of new equity raises had already slowed to a trickle, with the threat of rising interest rates coming into 2022 prompting a sharp sell-off in high-growth stocks. That scenario was then exacerbated by escalating tensions in eastern Europe.
Companies have raised less than $2.5bn through US initial public offerings since January 1, compared with more than $24bn in the first two months of last year, according to Dealogic data. Just one company, private equity group TPG, has raised more than $250mn.
And the developments in Ukraine, which have driven volatility across financial markets in recent weeks, are expected to dampen the IPO market further. No US IPOs were completed this week, and the one small deal that had been scheduled — for a UK-based cannabis company — was delayed.
Some investors are also worried that a prolonged conflict will amplify pre-existing concerns over rampant inflation in the US. The stand-off has already pushed oil prices — an important input into inflation calculations — higher, fuelling concerns over more persistent inflation which had already been a primary cause of price swings from stocks to bonds this year.
Overall, the US high-yield bond market is off to its worst start on record, for data going back to 2000 from Ice Data Services, falling 4.2 per cent so far this year.
“The market is definitely in a challenging spot . . . The Fed has to figure out how to contain this inflationary pressure,” said John Gregory, head of leveraged syndicate at Wells Fargo. “Otherwise it can become a problem for the broader economy.”
