Coronavirus Paralyzes Global Credit Market As New Issuance Crashes To Zero February 28, 2020 298
In the early days, when virtually nobody paid attention to the coronavirus pandemic which China was doing everything in its power to cover up, markets were not only predictably ignoring the potential global plague – after all central banks can always print more money, or is that antibodies – but until last week, were hitting all time highs. All that changed when it became apparent that for all its data manipulation, China was simply unable to reboot its economy as hundreds of millions of workers refused to believe the government had the viral plague under control, starting a potentially catastrophic 2,3 month countdown to millions of small and medium Chinese businesses going bankrupt, resulting not only in untold devastation in the world’s 2nd largest economy but paralyzing and crippling supply chains across the world. Worse, it also triggered the biggest equity selloff in years.
And now, the coronavirus pandemic is about to leave yet another market in critical condition as the global credit machine is grinding to a halt.
As Bloomberg points out, the $2.6 trillion international bond market, where the world’s biggest companies raise money to fund everything from acquisitions to factory upgrades, came to a virtual standstill as the coronavirus spreads panic across company boardrooms.
While hardly a surprise with US equity markets suffering one of their worst selloffs since the great depression, Wall Street banks recorded their third straight day without any high-grade bond offerings, an unheard of event – especially in this day and age of ravenous yield appetite – outside of holiday and seasonal slowdowns. Across the Atlantic, European debt bankers had their first day of 2020 without a deal on Wednesday. And bond issuance in Asia, where the virus first emerged, has also slowed to a trickle.
As Bloomberg puts it, “it has been a remarkable turn of events for a market where investors had been snapping up almost anything on offer amid a global dash for yield. Europe had been enjoying its strongest ever start to a year for issuance, and sales of U.S. junk bonds have been on the busiest pace in at least a decade. With so many borrowers having postponed their issuance plans, a calming in global markets could kickstart debt sales again.”
Honeywell, Virgin Money UK and Transport for London were among the numerous European borrowers who had lined up deals before financial markets turned upside down. Before the slowdown, Europe had seen 239 billion euros ($260 billion) of bonds sold in January alone. Across in the US, the investment-grade market was expecting around $25 billion of sales this week before virus fears froze the market on Monday. Excluding the seasonally dead December holiday season and typical two-week summer hiatus in late August, there hasn’t been that long of a break to start the week since July 2018.
As shown in the chart below, after record new issuance in the investment grade market, the last week of September has seen a total paralysis in the primary market, similar to the freeze of China’s economy.
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