Eurozone debt sales set for rebound

US companies are coaxing eurozone debt markets back to life after the recent rise in bond yields squeezed credit sales to a trickle.

On Wednesday, 3M, the US vinyl tape maker, mandated a €1.3bn triple tranche deal through Deutsche Bank, following a €300m inaugural euro deal from Blackstone, the US private equity giant, on Tuesday.

The deals follow a barren fortnight for eurozone credit as heightened market volatility slowed deal issuance activity to its slowest pace all year with just €7.3bn worth of euro-denominated corporate bonds sold in the past two weeks. That represents less than a third of the €25.1bn issued in the two weeks beginning 14 April, before eurozone bond yields rose sharply, according to Dealogic.

Now with yields higher and a pipeline of deals waiting, the market expects a restoration of debt pricings in the coming weeks, should interest rates stabilise. In the past three weeks investors owning high-grade euro credit have seen their total returns for the year erased and enter negative territory, according to UBS.

"Volatility makes it challenging to place a deal in the markets," said Hyung-Ja de Zeeuw, senior credit strategist at ABN AMRO. "There are still many issuers waiting to issue in euros, and there are many sidelined waiting to use the current low-yield environment. I think there will be more of these deals in the coming weeks," she added.

As yields show signs of consolidating in Europe, US companies have propelled eurozone bond market activity, led by the Blackstone and pending 3M debt sales. Yields for eurozone credit remain well below US investment grade offerings, enticing multinational companies to spread their issuance across the Atlantic.

"The return of these types of deals makes the case that there is strong underlying appetite for bonds - it's just that over the last three weeks there was too much volatility in the market so investors pushed back," said Thibault Colle, strategist at UBS.

"The pipeline has been building up and there are still a lot of issuers out there keen to come out and issue bonds," he added.

The slowdown in eurozone credit sales is in stark contrast to the US, where bond sales are running at a healthy rate. In the past two weeks, $85.1bn of bonds were sold in the US, compared with $8bn in the eurozone, according to Dealogic.

But Ms de Zeeuw warned that as the summer holidays approach the tempting yield environment on offer in the eurozone could lead to a flood of over-issuance.

"There is still volatility going on. On quiet days there will be windows of opportunity, and I fear those days a little bit because there could be more issuance than markets can digest," she said.

Corporate credit was among the biggest beneficiaries of the European Central Bank's full-blown quantitative easing programme announced in January, with prices rising steeply, yields falling and issuance soaring.

But a sharp fall in the price of government bonds quickly hit credit markets in recent weeks as the sustained rally in eurozone debt markets, fuelled by aggressive monetary easing, went into reverse.

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