Green shoots in corporate issuance

There are signs of green shoots in the corporate bond market, according to Gwen Greenberg, Head of DCM Australia, ANZ Institutional – but issuers remain wary amid ongoing volatility.

Speaking ahead of the ANZ Debt Conference earlier this year, Greenberg said while she is becoming more positive on the outlook, many market participants continue to take a wait-andsee approach.

“I do see green shoots ahead in terms of corporate [bond issuance],” she said. “But we need to start seeing a little bit more primary coming through before other corporates are ready to come to the market.”

“There is plenty of liquidity. It’s just price sensitivities among investors, and how they’re willing to deploy cash has certainly become more discerning.”

Greenberg made the comments in conversation with Gavin Chappell, Head of Loan Syndications at ANZ Institutional.

Greenberg said the volatility seen in the last quarter of 2021 had accelerated through the start of this year, primarily driven by rising interest rates.

“We’ve had inflation increasing quite dramatically,” she said. “We’ve had the impact of supply chain issues - there’s a lot of factors outside of our control that have increased volatility.

“[This has] flowed into the investment-grade, high-grade [bond] market, both domestically and offshore.”

Slower to react

The news is better in loans, according to Chappell, where he expects the market to continue to benefit from volatility.

Chappell noted the loan market has been slower to react to the volatility than bonds, with the recent fourth quarter the second highest for activity on record. This year has kicked off slightly slower, he said, but primarily due to high volumes from late 2021.

“Whenever you look through periods of volatility, the loan market typically is a little bit more active than the bond market because banks can fund a little bit easier than what corporates can,” Chappell said.

“Loans are a little bit more attractive than bonds at that particular point in time. You do see spikes in loan market activity whenever there’s points of volatility in the cycle.”

Greenberg called the market for loans “compelling” and said there was potential for activity to increase significantly in the second half of the year - especially among “borrowers that are rated”.

These borrowers will aim to ensure they have the correct “mix” of bank debt and bond debt for their ratings, she said – and that the mix is not too heavily weighted to one market. Those that are overweight bank debt will likely look to “term [it] out” in the debt capital markets.

For Chappell, the outlook is clear.

“From a loan perspective I’d say: don’t wait,” he said. “Come now. Because I think the trend is only going to be up for a little bit further from a pricing perspective, so take advantage of it now while you can.

“I think if you come to speak to me in three months’ time or six months’ time, loan pricing is probably going to be wider.”

Switch

Chappell said the merger and acquisition activity factor from 2021 had continued to play out in 2022 - but noted the details were a little different.

“Last year there was both corporate and private equity M&A, whereas this year I think probably a little bit more focus on private equity M&A,” he said.

Asked about the rise of so-called ‘private-credit funds’ in the loan market, Chappell described it as closer to institutional investors simply moving into loans. But he sees a growing trend there.

“It’s increasing all the time and it’s only going to grow further,” Chappell said. “I mean, I don’t see any let up in the amount of money being generated to invest in loan assets. I think that’s more about the supply side than the investor side.”

For Greenberg, the silver lining for bond market is the presence of liquidity.

“I think there is liquidity there,” she said. “You can get deals done; you just have to be flexible.

“There are some days that are not good days and some days that are great days. When you get a great day, you don’t think tomorrow will be better. You take your good day, and you go.”

But volatility will continue, Greenberg said, at least “until we get past the medium-term of inflation” - in Australia, the US and even Europe.

“You just have to manage the current volatility,” she said. “It can be done. There’s plenty of liquidity available, you just have to time it [correctly].” The experts also discussed the shift in customer activity between bond and loan markets, and ANZ’s growing private placement capability in the United States.

To hear more, listen to the ANZ podcast “Green shoots in corporate issuance” by scanning this QR code.