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◆ The sheep and the goats in UK water ◆ How EM loses assets but gains deals ◆ US corporates lean to euro bonds
Investment bankers feel like they're on the verge of something good: a boom year in 2025 of mergers and acquisitions, by both corporate and private equity firms, and all the debt and equity financing that goes with it.The US will be front and centre, all agree, as even the prospect of Donald Trump's presidency is quickening the nerves with hopes of deregulation and M&A being waved through without questions.
Even Trump's harsher moves like tariffs could stimulate deals as companies try to position themselves better.
It's a shoo-in that the US investment banks will do well in this climate, but which of the European banks are chasing them hardest, and managing to outrun their peers? We highlight the winners of 2024 and next year's contenders.
Also this week, Ofwat, the UK water regulator, produced its much-anticipated final determination of the financial parameters for water companies for the next five years. We explore what it does for the sector, especially its sickest member, Thames Water.
And the US Federal Reserve made a "hawkish cut" of interest rates this week. That is crushing the hopes of emerging market bond investors, which have been longing for three years for a strong rate cutting cycle to give them some money inflows at last.
But it could be good news for bond bankers in London, as US companies may turn to the euro and sterling markets for funding next year.
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◆ How to fund Europe
◆ What market experts think is going to happen next
◆ The EU to embark on biggest six-month funding spree
The European Union shapes up poorly compared to its rivals when it comes to growth and competitiveness. Former ECB president and Italian prime minister Mario Draghi believes the bloc needs €800bn of investment a year, but how to raise it? We reveal all.That story is just one in our Review 2024 | Outlook 2025 special report. If you register by clicking through to this page, you will not only receive a free printed edition of the report but also 14 days of free access to GlobalCapital.
We also discuss what the most senior debt capital markets bankers think is going to happen in the year ahead, and where they see the threats and opportunities for their business. Clue: good news for those either looking to start out, or who have newly arrived in, their capital markets careers.
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◆ French government collapse scrambles bond market
◆ What next for French corporate, FIG, covered bond and public sector bond issuers?
◆ ECB Trials on distributed ledger technology: the verdict
The long-running saga of the peril of the French public purse took a new twist this week as the country's government collapsed over budget wrangling.That turned the traditional order of relative value between French bond issuers on its head — corporates, including luxury good firm LVMH, now trade tighter than the sovereign.
We look into what comes next for French issuers from the sovereign and public sector agencies, to the country's banks and investment grade companies. Do investors really believe they are more likely to be paid back by LVMH than by the state?
We also revisit the recently concluded ECB Trials of distributed ledger technology in the bond market to see what progress was made and whether capital markets are any closer to going digital.
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◆ French bond issuers' tough time ahead as PM fights to get budget through
◆ Trump tough talk on tariffs' threat to emerging markets
◆ Investors give IPO sellers the silent treatment
There are barneys - quarrels to those unfamiliar with British slang - breaking out all over the place and capital markets are caught in the crossfire.In France, prime minister Michel Barnier has a fight on his hands to get his budget passed. It could cost him his job. Meanwhile, French government bond yields are soaring alongside the country's deficit.
We look at the dilemma that poses for French issuers in the public sector and covered bond markets through the prism of a deal from one of them this week.
Where there's Trump, there's trouble. The US president-elect is threatening tariffs. This could spell disaster for emerging market issuers but, as we discover, panic is yet to set in. We explain why.
Our final fight is in the equity capital markets where investors are giving sellers no clues as to their interest in new listings. That makes every deal more risky. We investigate how to break the impasse.
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◆ The challenge for SSA issuers next year
◆ German banks and the commercial property millstone
◆ Hybrid hot streak explained
SSA bonds in euros have widened against swaps by quite some way in recent months. That will present a big challenge for the asset class's smaller issuers next year. We explain how the market will find a new clearing level.German banks - two in particular - have suffered from investor fears over exposure to commercial property. Those fears have abated over 2024 but this week there was a deal that suggested a mild degree of terror lingers. We investigate.
Finally, there has been a spate of corporate hybrid debt issuance lately. We find out why and whether there is more to come.
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◆ Donald Trump’s threat to ESG finance in the US
◆ Why ‘woke capitalism’ won’t be put to bed
◆ UK auto ABS faces up to compensation crisis
One of the biggest areas of conflict in US politics over the next four years — and indeed, over the past four — will be over environmental, social and governance matters. Donal Trump’s administration will likely be no fan of what its supporters sometimes call “woke capitalism”.But whether this spells disaster for environment and for ESG capital markets remains to be seen. Although the Republicans have a firm grip on the federal government, a deep dive into ESG in the US reveals that they are unlikely to be able to have everything their own way.
Meanwhile, a ruling that may entitle UK car buyers to billions of pounds worth of compensation from the banks and other firms that financed their wheels could have negative consequences for the auto ABS market. We take the scenic route in examining the situation.
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◆ Trump triumphs, Scholz slumps, rates roil
◆ Credit issuers off to the races
◆ Rates issuers contend with unprecedented Bund-swap inversion
The underlying movements between benchmark rates and bond yields are rocking the capital markets. Why? Well, this week the blame could be laid squarely at the door of politics.
Donald Trump's resounding victory in the US presidential race means the world's economic currents are about to shift, turbo charging some areas and threatening others. Meanwhile, the collapse of Germany's government helped to push Bund yields above euro swap rates for the first time ever.
Both these things have driven big changes in the value of one asset class in the bond market against another, affecting how much investors want to buy them. We explain the changes underway in SSA, covered, FIG and corporate bonds and what they mean for issuers in the weeks and months ahead. -
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◆ What Trump or Harris mean for EM sovereign issuers
◆ The outlook for UK capital markets after the Budget
◆ Creditors turn on each other in Thames Water sagaIn a year of elections, now comes the big one — the US votes on November 5 for either Kamala Harris or Donald Trump as its next president. Whoever wins, and whichever of the Democrats or Republicans ends up controlling Congress, the effect of the results will be felt around the world, including in its capital markets.
We focus on one group of borrowers for whom the result can make or break their bond market access: emerging market sovereigns. We discuss the effect a Trump or Harris presidency will likely have on their funding access and why.
The UK's new Labour government revealed its first Budget this week. We examine how the event affected the Gilt market and look more broadly at the outlook for equities, M&A and investment banking in the country.
Finally, an update on the latest twist in Thames Water's debt saga as different groups of creditors launched alternative and competing proposals to lend the company more money.
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◆ New CEO revamps HSBC to be leaner and meaner
◆ What markets think of idea to make UK water sector non-profit
◆ The swap spread dynamic hammering SSA bonds
New HSBC boss Georges Elhedery is restructuring the bank. It's what new CEOs do; and it has certainly been tried at HSBC before, with mixed results. But plenty of people think this time could be different. We explain why Elhedery's plan could work and what the motivations are behind it.A corporate restructuring idea that received a less enthusiastic reception was one to make the UK's troubled water companies — privately owned — operate as non-profits. The sector is in crisis and requires huge investment. The thought is that money previously funnelled into private hands by way of dividends should be used to pay for it. We talk through the ramifications and the reaction in capital markets.
Finally, we look into the accelerating tightening of the spread between Bund yields and interest rate swaps in euros and why this could cause a headache for supranational and agency bond issuers.
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◆ Iconic NYC spot powers CMBS revival
◆ Gilt market braces for Labour Budget
◆ Banks plan bonds for November undaunted by US election
The US CMBS market lapped up its biggest deal of the year this week, backed by loans on New York's famous Rockefeller Center. We look into what the deal tells us about the revival of offices and the pipeline for the CMBS market, which has been troubled for years by changing working practices and high interest rates.In the UK, the Gilt market is gearing up for the new government's first Budget, due at the end of the month. The government says there is a £20bn hole in the public finances and that it wants to invest. But how much extra Gilt issuance can the market stand? We find out.
Finally, the big risk event of the year for capital markets — the US election on November 5 — does not appear to be causing quite as much peril as it did earlier in the year, to the extent that Europe's banks are already planning to bring deals in its immediate aftermath across the capital stack.
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◆ T+1 is coming but is it worth the hassle?
◆ Despite appearances, bank bond issuers are not getting it all their own way
◆ Where the EU slots into the reshuffled SSA pack
The UK has launched a draft framework for settling securities trades a day after deals are done — T+1 settlement. The EU is expected to follow, with both markets aiming to catch-up the US, which cut settlement time down to one day in May. But not everyone is thrilled at the prospect as they face up to the burden of paying for everything required to make it happen.In the FIG market, banks seemingly have the upper hand over investors but there was plenty this week to suggest that they cannot simply do whatever funding they want at a price of their choosing. We look at the treacherous undercurrents at work.
Finally, we revisit a story from last week's show where we explored how the landscape of the European government bond market is changing. Well, no story about the SSA market is complete without considering where the EU fits in. In the week in which it executed another blockbuster syndication, we investigate where the jumbo-sized issuer sits — something it has been urging the market to consider for a long time, itself.
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◆ The new pecking order in eurozone government bonds ◆ Can the bond market build Britain? ◆ UniCredit v Commerzbank: after Orcel's gambit, the Orlopp defence
Everything you thought you knew about eurozone government bonds is wrong. Well, maybe not quite everything but certainly big shifts have taken place in how the market views the creditworthiness of different sovereigns with Spain, for example, now trading tighter than France for the first time in 16 years. We look at the shifting dynamics and what is driving them.The UK's new Labour government, meanwhile, wants to build more houses. The country's housing associations will have a key role to play in that but can they fund everything they need to for that in the bond market? We look into their options.
Finally, we bring an update on the latest twist in UniCredit's attempt to take Commerzbank over as the latter's new CEO builds her defence.
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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. -
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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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