Too much of a good thing?

The GlobalCapital Podcast

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◆ Emerging market and financial institution bonds on fire after Fed cut ◆ Huge demand spurs massive issuance ◆ But signs of weakness appear in corporates and public sector bonds

Markets were unsure what they wanted from the Federal Reserve, but the 50bp rate cut it doled out last week turned out to be just the ticket. In credit markets, all cares and qualms have been forgotten, in one wild party of risk-taking and risk-issuing.

Emerging market issuers of all classes, from Saudi Aramco and Abu Dhabi wealth fund ADQ to Agrobank of Uzbekistan have been piling greedily into the market, making up for two lean years of minimal issuance. Deals are flying, making even these usually slow and wary issuers scramble to put issues together.

If you thought banks had done masses of funding and didn’t need any more, think again —there is an additional tier one capital festival going on in the US, with half this year’s issuance having come since August. Santander, which trumpeted having finished its funding for the year in June, found space for another €3bn, though it promises not to return to euros again till next year.

It’s a strong market for corporate bonds, too, but banks have noticed a big rise in investors getting price-sensitive and dropping out of orderbooks. Deals are still going well, but it’s an early sign of fatigue and oversupply.

And the more cerebral public sector bond market is fretting. Euro deals just aren’t going well and spreads have widened markedly. There is still the dollar market, but something isn’t right in Europe. Is it France?
PLUS a brief interview with Stefan Wintels, CEO of KfW.