The GlobalCapital Podcast

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Some corporate borrowers are finding the once verdant loan market a hostile spot to hang out lately, driving some companies to test out bonds for the first time. If a debut deal this week from Germany’s Rewe — which seems to still be able to access loans without any problem — is anything to go by, then the potential debutants planning to take the plunge should feel very confident indeed.

In the world of SSAs, the market has been hit and miss in ways that bankers and issuers find hard to define. There are three major theories as to why, as explored in the podcast, but the most striking one is that the market is holding its billions of euros back for the European Union’s late summer syndicated trade.

Meanwhile, somewhere famously not in the EU has run into some bother. The UK’s second largest city and England’s largest council, Birmingham, is facing a funding crisis. Beyond the acute problems for the city itself, the financial failures have put a significant dent in long held hopes that the UK local authorities might start to take more funding from the capital markets.

Finally, we head to Turkey, where two of the country’s biggest banks — Vakif and Yapi Kredi — were in the market on consecutive days, to the detriment of both deals. The Turkish sovereign has another $2.5bn to raise before the end of the year, so we discuss what can be gleaned from the banks’ outing.

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◆ Do investors want unified capital markets coverage?
◆ Corporates fear democracy
◆ Why are FRNs trending?
◆ Second lien mortgages in arrears ― yes please

Banks’ urge to cut costs in debt capital markets, especially syndicate desks, is prompting some to call for the ‘global capital markets’ model: one team for equity and all kinds of debt.

They argue this could heal banks’ disjointed thinking and allay investors’ frustration that they have to say the same thing to five different bankers at every firm. But there are plenty of sceptics...

Few in the corporate bond market expected its rally to last into this year, still less the second quarter. But here we are and it’s still running. A motley bunch crammed into the market this week and found a great reception. As Mike Turner explains, they’re partly packing the funding in to avoid this year’s great big risk event: the US election.

Floating rate notes are the natural product for banks to issue, but normally they don’t much, because most investors prefer fixed rate bonds. So why are investors gagging to buy floaters now, just when everyone agrees interest rates are about to fall? Sarah Ainsworth goes through the ins and outs.

Second lien mortgages are the kind of — shall we say 'challenging' — collateral familiar from the US securitization market, but as George Smith and Victoria Thiele highlight, the UK has produced four deals in the past five months. The latest, from Equifinance, had some pushback in the market, but investors were only joshing and bought it in the end. We ask if lower ranked mortgages are the hot new asset class.

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Cryptocurrencies have had a rough time of late but they are clearly no flash in the pan. That has driven regulators to intensify their efforts to gain control over this financial frontier.

The Bank of England’s deputy governor this week sounded a warning that if the crypto world wasn’t brought under control soon, it risked suffering its own Hindenberg moment, referring to the time the famous German airship exploded ending, perhaps prematurely, the development of what could have been a useful technology.

Of course, there have already been explosions in the crypto markets but regulators are keen to find a way to bring stability to their more useful parts to allow them to flourish. We look at who is trying to bring which bits of crypto to heel and how they plan to do it.

Banks have a big part to play in this too. Following the recent release of the ECB’s climate stress test for the lenders it regulates, we discuss how banks’ involvement in the notoriously energy-hungry crypto markets should be done with the aim of greening it as it develops.

We also investigate the latest turmoil in Italian politics. Prime minister Mario Draghi offered to resign this week, sending Italian sovereign debt yields and spreads to Bunds higher, just as his former employer the European Central Bank is expected to reveal its new tool for keeping those very numbers under control. We take a look at what this means for Italy and how SSA borrowers will adapt their funding tactics to cope with ever more frequent disruption — this was not after all the first shock of the week with US inflation coming in above expectations at 9.1%.

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◆ Latin America’s bond markets at an (interest rate) inflection point
◆ Who’d be a primary dealer?
◆ What price briiiiidge loans?
As GlobalCapital launches the poll for our first dedicated Latin America Bond Awards, our podcast takes a deep dive into the region’s troubled capital markets, with special guest Omotunde Lawal, head of emerging markets corporate debt at Barings.

There may not be many deals in the market — at least not public ones, as Lawal points out — but there is masses going on. Javier Milei, Argentina’s new populist firebrand president, has gobsmacked everyone by choosing establishment figures to run finance. Mexico has an election next year that could hold upside for the markets, and in the meantime, the region’s CFOs and treasurers, used to tough times, are getting on with the job.

In Europe, we look at government bond primary dealerships, long a source of gripes for investment banks as it is so hard to make money on them, and easy to lose it. Capital rules are about to tilt the balance of incentives still further, and waiting in the wings are non-bank market makers like Citadel Securities.

Patience is a virtue — especially in the loan market, where bridge loans for M&A deals are having to go on, and on, and on. M&A deals simply take longer to close nowadays, which is changing the dynamics for banks.

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The primary bond market was going gangbusters this week. January is always a busy month but, so far, this one feels busier than others.

Bond markets have run on central bank fuel in the form of low rates and quantitative easing for years. That has led to some startlingly low yields and an era of cheap borrowing. But with rate rises on the way to combat inflation, there is a very real sense that this could be the end of an era.

Amid the flood of new bond issues, issuers are grappling with how to keep lure investors into allowing them to lock in low rates just as the era of cheap money looks set to end. Meanwhile, investors are asking themselves what it would take for them to buy certain bonds that pay what are obviously meagre yields now, let alone how they will compare once rates rise across the board.

All of that has led to some interesting dynamics across the sovereign, supranational and agency, financial institution, corporate high yield and convertible bond markets. The success of some of the deals issued this week looks, at first glance, to be completely counterintuitive, that is until you take a closer look.

On this week’s podcast, we take that closer look to see what is driving bond issuance, whether we witnessing the final throes of the age of cheap money, and how that might affect the rest of the year in the primary capital markets