The GlobalCapital Podcast

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◆ The new rate cycle begins at last ◆ Can Deutsche Bank avoid being overtaken by UniCredit? ◆ Carmakers in trouble ◆ The DLT help no one wanted

UniCredit’s stealth raid to grab 9% of Commerzbank last week threatens Deutsche Bank’s historic primacy in German banking. What can Deutsche CEO Christian Sewing do about it? We discuss three courses of action — one clearly better than the others.

That’s not the only trouble in Germany: BMW is having to make a €1bn product recall and Volkswagen might have to close factories in Germany. 

This week two other companies in the automotive sector, Daimler Truck and Renault’s RCI Banque, came to the bond market. 

We look at how the market treats borrowers when something is amiss in their sector.

But the reason this week will go down in history is the first Federal Reserve rate cut since the onset of Covid — the true beginning of the new easing cycle. Markets have known it was coming — now the ride has begun, with a 50bp move that has leapfrogged the European Central Bank and Bank of England. We find out how public sector borrowers are handling the new environment.

And there is a dispatch from the blockchain bond market. ‘I’m from the government and I’m here to help,’ said the European Union last year — but it hasn’t.

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◆ Corporate bond issuers swarm on new measure of success to chagrin of their banks 
◆ An utter riot at one end of the credit spectrum for bank debt... 
◆ ... while investors take their sweet time at the other end

Issuers in the European corporate bond market are beginning to fixate on the amount they are able to move pricing in their favour when they bring a new deal to market as a key marker of the trade's success. 

But just how good an indicator is that? Certainly the banks that connect these issuers with investors by running these deals don't think much of it. We look at the pros and cons of this latest fad.

We also took a look at the bond market landscape for financial institutions. Banks bringing their most expensive and riskiest deals to market — additional tier one capital — found a red hot market this week. But at the other end of the scale, there is a sense that ultra-safe covered bonds are proving a harder sell. We examine the market dynamics.

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◆ Slovenia debut emblematic of issuers tapping Japanese market despite carry trade chaos 
◆ Being all things to all investors in the covered bond market 
◆ Corporate issuers keep it short and sweet

This week we take an in-depth look at the techniques bond issuers are using in the race to get as much funding done before the US election. Benchmark issuance resumed early this year after the summer lull and it is clear that issuers are keen to get their bonds sold as quickly as possible. We focussed on three tactics.

One was investor diversification. Slovenia made its debut in the Samurai market this week but it is not alone among what have traditionally been considered emerging market sovereigns in doing so. Mexico was a recent issuer and there are plenty of countries in the pipeline. We examine the attractions and difficulties of the Japanese market, especially in light of the recent market volatility caused by the Bank of Japan putting up rates and the effect that had on the so-called yen carry trade.

We also looked into the diminishing demand for long-dated debt. Bonds with long tenors were a hot ticket all year but demand has dwindled of late. We find out why through the lens of the corporate bond market and what issuers are doing to adjust.

In the covered bond market a third tactic was in play: appealing to as many investors at possible at once. TD priced a slug of covered bond issuance in euros this week that you would more commonly find in the dollar market for unsecured debt. We discuss what the Canadian issuer was trying to achieve, whether it succeeded and if the technique will catch on.

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◆ Why benchmark issuance has resumed earlier than usual
◆ What lies ahead for capital markets
◆ African issuers switch out of loans to bonds

Unpredictable weather is increasingly a feature of modern times. Indeed, as GlobalCapital recorded this week's show, summer appeared to have ended abruptly in its corner of the UK, with distinctly autumnal weather dampening both the pavements and the mood despite there still being a chunk of August to go.

The bond market was also looking distinctly unseasonal this week too, as issuers across asset classes resumed public benchmark bond issuance early compared to most years. We look at what got done, the health of the market and why issuers have gone early.

We also discuss what African borrowers are planning as they switch from loan funding to bond markets and what is driving that behaviour. Plus the latest from defaulted Ethiopia's negotiations with creditors.

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Banks have started to reveal how they will restructure the pay of front office staff following the removal of the bonus cap in the UK. We investigate who will benefit from the new rules (spoiler alert: it's probably the banks).

Recent market volatility has thrown up opportunities for corporate issuers. Firstly, we discuss why we are about to see more US companies issuing bonds in euros.

Then we travel to the US convertible bond market where we delve into a new debt package for the airline JetBlue, which resulted in a plunging share price and a credit rating downgrade.

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◆ Issuers and investors look for clues after violent price swings 
◆ Which borrowers will lead autumn deal spree 
◆ How pricing has shifted in primary market

There are moments that change what is to come. When poor US employment data and corporate earnings, and a rise in Japanese interest rates last week sent the markets into a tailspin at the start of this one, it changed how issuers will approach the capital markets when issuance volumes start to ramp up later this month. 

And this year, the autumn issuance window is particularly important with the fractious US election threatening to make October and November an ill advised time to be in the capital markets with lots of funding to do.

We discuss how this week's turbulence has changed the picture for borrowers making plans for the rest of the year in terms of timing and pricing of deals. 

As one of the characters in Alan Bennett's play The History Boys notes, there are times when events force people down a different course — "and here history rattled over the points", he says. Was this week one where the capital markets headed off down a different track to the one they thought they were on? We find out.

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◆ First eurozone government sells bond on distributed ledger 
◆ The rate cutting wheel turns faster

Making innovations a reality is partly about who does them, so the first eurozone sovereign issuer selling a bond on a blockchain is a milestone that takes the market up a notch in credibility.

GlobalCapital’s reporters discuss their findings after speaking to Slovenia’s treasury this week about why it wanted to take the lead among peers by trialling this new technology with a €30m four month bond. Other sovereign borrowers told us they were content ― for now ― to watch from the sidelines.

Slovenia chose the Banque de France’s solution, wanting a system in which both legs of the trade were fully tokenised.

Meanwhile, conventional bond markets have been gripped by central bank fever again, as the Bank of England joined the European Central Bank on the rate cutting path. Although the Federal Reserve held rates, it was seen as a dovish hold. That leaves the public sector bond market raring to get started on issuing ― but will it find suitable windows?

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◆ Ukraine restructures $20bn of bonds 
◆ Excitement in digital bonds 
◆ Is UK water going down the plughole?

Swiftly after Ukraine was invaded by Russia, it agreed a two year suspension of debt service with bond investors. That expires on August 1. While many thought Ukraine would negotiate an extension, it has chosen instead to do a full restructuring, issuing new bonds in exchange for the old. We explore why, and whether this was a wise move.

We are reaching the mid-point of the European Central Bank’s trials of distributed ledger technology for financial markets, including bonds ― a festival of experimentation in which banks, clearing houses, central banks and tech firms are trying different ways to get bond deals on to blockchains. There are strong hints we are about to get the first DLT bond from a eurozone sovereign.

Supplying the most basic commodity, water, as a regulated monopoly sounds fairly straightforward, and not likely to generate a lot of credit risk. But Thames Water was downgraded to junk by Moody’s this week. If S&P follows suit, the once unthinkable will have happened: a UK water company breaching its licence due to credit weakness. How will the capital markets react?

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◆ UN circles banks on circular economy 
◆ Topping out on Turkey 
◆ CLOs: summer recess or summer resets?

ESG capital markets are undergoing another revolution. The UN is beckoning banks to police their corporate clients' transition to being part of the circular economy. But what is the circular economy and are other shapes available? How can banks put pressure on businesses to better manage resources? We explain all.

Turkey's bond issuers have absolutely obliterated the record for volume of bond issuance from the country this year. We discuss what led to this renaissance and what will affect supply and demand for Turkish bonds for the rest of the year.

The European CLO market is also running at a hectic place, with deal resets galore set to ruin everyone's summer holiday plans. We discover the interesting market dynamics at play that are driving such a busy spell.