Debt Market Update reflects key trends in 2016 in the syndicated loan, bond and securitisation markets.
Excess liquidity and strong investor demain in bond markets
- A strong redemption profile in the A$ medium-term note market will fuel primary demand. Therefore spreads will likely be more influenced by offshore events and any perceived global liquidity issues. New issuance concessions have settled at 5-10 basis points, as per global practice.
- Based on oversubscription levels in 2015, the US private placement market can absorb far more volume than last year’s US$45.6 billion of issuance. Amid increased allocations to private placements, whether or not the market breaks 2014’s record of US$56 billion will be determined by issuer supply, not investor demand.
- Excess liquidity in the Euro market has led secondary margins to historically tight levels while primary bond issuance has attracted a new issue concession that we believe is here to stay.
Bank regulation to impact Australasian loan market
- Opportunistic refinancing such as ‘amend and extend’ strategies are expected to lose favour where further margin compression proves challenging to execute or there is risk of an unfavourable repricing outcome.
- Against the backdrop of regulatory change and widening of corporate bond spreads, the continuing ability of lenders to accept below-hurdle returns in questionable and will likely lead to the moderation of appetites to hold for the long-term and increased pressure for ancillary business in the short-to medium-term.
- An evolving trend is regulatory changes requiring banks to allocate capital before financial close. This may trigger pressure to reduce commitment periods.
- To date the loan market has lagged movements in corporate bond spreads but this differential will likely narrow eventually as banks look to manage cost of funds pressures. There are signs that loan market pricing may have reached an inflexion point, with risk skewed towards higher prices.