Navigating the Global Bond Landscape: Trends and Opportunities Abound

The global bond market is poised for a resurgence, with the backdrop suggesting that fiscal year 2024 (FY24) volumes could surpass the highs achieved in 2022 and 2023. Driven by increased refinancing activity, large leveraged buyout (LBO) transactions, and a surge in collateralized loan obligation (CLO) formation, the bond market is experiencing a renewed sense of momentum. Additionally, interest rate cuts and the tight trading range of the iTraxx Crossover have further bolstered the market's appeal.

Unlocking the Potential: Navigating the Global Bond Landscape

Surpassing Past Milestones: FY24 Bond Issuance Outlook

The global bond issuance volume in the year-to-date (YTD) of FY24, based on data up to September 20th, has already exceeded the volumes achieved in the entirety of 2023. With a deal count of 21,537 and a total volume of USD 6.958 trillion, the YTD24 figures have surpassed the USD 6.605 trillion in FY22 and USD 6.682 trillion in FY23. However, the market still has room for growth, as it remains below the record highs of USD 9.112 trillion in FY20 and USD 9 trillion in FY21.

Macroeconomic Tailwinds: Fueling the High Yield Market

The high yield markets have been bolstered by encouraging macroeconomic fundamentals. The US Federal Reserve, in September, lowered the target federal funds rate by 50 basis points to 4.75%-5.00%. Similarly, the European Central Bank (ECB) has cut interest rates twice this year, with the key deposit rate currently standing at 3.5%. The Bank of England has also joined the rate-cutting trend, reducing interest rates for the first time since the COVID-19 pandemic, with the main rate now at 5.0%. These policy decisions have created a more favorable environment for high yield bond issuance.

Thriving CLO Market: Driving Momentum in the Bond Landscape

The CLO market has also been a significant contributor to the bond market's resurgence. CLO AAA spreads have been printing more tightly in recent weeks, and there has been a record level of CLO issuance year-to-date, according to a recent Goldman Sachs leveraged finance report. This robust CLO activity has been a key driver of the overall bond market's momentum.

Geopolitical Resilience: European Credit Indices Maintain Tight Ranges

Despite the ongoing geopolitical upheaval, credit indices in Europe have traded within a relatively tight range. The iTraxx Crossover, a key European credit index, was indicated around 310 basis points on January 1, 2024, and is still trading around the 300 basis point area. The index has reached year-to-date highs of 344 basis points-mid in April and year-to-date lows of 276 basis points-mid in mid-September, according to IHS Markit data. This resilience in the face of global uncertainties has further bolstered the bond market's appeal.

Supportive Pipeline: Upcoming Bond and Loan Issuance in Europe

The European bond and loan market is poised for continued growth, with more than EUR 20 billion in bonds and loans expected to launch in the coming months, according to participants at the recent Goldman Sachs Credit & Leveraged Finance Conference. While the pipeline of mergers and acquisitions (M&A) and new money deals still appears relatively light, the supportive market conditions have created an opportune environment for bond and loan issuance.

Prominent Deals Showcase Strength

Several large European bond deals have been announced since the start of September, further underscoring the market's resilience and appeal. These include deals for UK vehicle glass repair manufacturer Belron, UK-based parcel delivery firm Evri, and German motors and large drives unit Innomotics. The successful execution of these high-profile transactions reinforces the confidence in the global bond market.