Europe bond sales set new annual record


Issuers have flocked to Europe’s bond market this year to lock in ultra-low borrowing costs ahead of risks
Chief Investment Office08 Nov 2019
Photo credit: AFP Photo


US

US stocks sputtered late in the session Thursday (7 November) but still managed to close at a record high as traders were whipsawed by conflicting headlines on the progress of trade talks with China.

Early reports that the US and China were prepared to exchange tariff rollbacks pushed the S&P 500 Index higher throughout the day, but the rally lost some steam after Reuters said the plan was meeting resistance in the White House. White House economic adviser Larry Kudlow later told Bloomberg, “If there’s a phase one trade deal, there are going to be tariff agreements and concessions.”

Before the Reuters report, haven assets from gold to sovereign bonds had been sinking – along with defensive stocks like Utilities and Real Estate – as a risk-on mood gripped market. Sovereign bonds plunged around the world on the earlier positive trade news, with the 30-year Treasury yield hitting its highest since August. Risk appetite had been picking up as news of progress on trade helped counter earlier reports that a preliminary accord may not happen this month as the two sides continued to wrangle over a location to sign it. But the latest headlines have left traders to wait for the next bit of news. – Bloomberg News.

The S&P 500 Index rose 0.27% to 3,085.18, the Dow Jones Industrial Average gained 0.66% to 27,674.80, and the Nasdaq Composite Index advanced 0.28% to 8,434.52.

 

EUROPE

Europe’s new bond sales will break the full-year issuance record with more than seven weeks in hand, even as two deal postponements signalled that investors may be overwhelmed by the flood of deals.

The 2019 tally will surpass EUR1.28t (USD1.42t) on Thursday (7 November), helped by nearly EUR12b of offerings from companies including Apple Inc, Bayer AG, and Banco Bilbao Vizcaya Argentaria SA. That is enough to top 2017’s record and a jump of 13% vs the whole last year, according to data compiled by Bloomberg.

Issuers including record-setting US borrowers have flocked to Europe’s bond market this year to lock in ultra-low borrowing costs ahead of risks such as trade wars, Brexit, and possible recessions. Recent central bank stimulus measure has also driven down spreads, stoking a still-thick pipeline of deals including the likes of Bureau Veritas SA, Harley-Davidson Inc, and Australia and New Zealand Banking Group Limited.

“Everybody is in need of cheap money,” said a portfolio manager. It is “an easy win” for treasurers to replace Apple will sell EUR2b of green bonds on Thursday, adding to a surge of US non-financial company deals in the currency this year. US corporates including Medtronic Plc, Danaher Corporation, and International Business Machines Corporation have already sold more than EUR80b of notes, or more than double 2018’s full year total.

Euro investment-grade borrowing costs have dropped below 0.5% this year, compared with almost 3% in the dollar market, based on Bloomberg Barclays index data. More Emerging Market issuers have also sold euro notes this year, including sovereign sales from China, the Philippines, and Saudi Arabia. – Bloomberg News.

The Stoxx Europe 600 Index climbed 0.37% on Thursday (7 November) to 406.56.

 

JAPAN

Toyota Motor Corporation’s quarterly profit topped analysts’ estimates thanks to healthy sales of RAV4s in the US and Corollas at home, keeping the Japanese automaker’s business on track amid sputtering global demand for cars.

Operating income for the fiscal second quarter that ended in September was JPY662b, helped by cost controls that paved the way for a JPY200b (USD1.8b) share buyback. Analysts had predicted, on average profit of JPY604b. The shares rose 1.1% after the results, leaving the stock up 21% this year.

The maker of Prius hybrids and Tacoma trucks joins Tesla Inc, Ford Motor Company, and Volkswagen AG in reporting better-than-anticipated results, even as vehicle sales weaken across the globe. Toyota’s results contrast with other Japanese automakers, which are being hurt by a stronger yen that is eroding income brought home. Cost controls have helped Toyota maintain profits ahead of analysts’ projections, even while it invests heavily in an industry undergoing a tectonic shift to electrification and self-driving automobiles.

Revenue for the latest quarter rose 4.5% to JPY7.64t. North American vehicle sales climbed 5.6% from a year earlier, thanks to new models that helped to boost shipments even as incentives were cut back. Japan sales rose as well, to 585,000 units. Asia, usually an area of robust growth, grew just 3.3%.

Kenta Kon, Toyota’s operating officer, said sales in China were doing well, with Corollas proving popular and hybrids being accepted by the market. “Our share isn’t large but we’re catching up,” he said.

Toyota kept its annual outlook for profit and sales intact, at JPY2.4t and JPY29.5t. Even so, the automaker trimmed back its global sales target a tiny bit, by about 30,000 units to 10.7m units. Toyota sold 10.6m vehicles in the prior fiscal year.

The stock repurchase represents as much as 1.2% of the company’s outstanding shares, and is in line with Toyota’s past buybacks. In recent years, the automaker has typically announced a repurchase authorisation of JPY200b to JPY300b twice a year, in May and November. Toyota’s cash and equivalents remained the same from the prior quarter, at JPY6.2t.

As electric motors, autonomous capabilities and on-demand business models disrupt the industry, Toyota has been forging alliances, adding Suzuki Motor Corporation, Mazda Motor Corporation, and Subaru Corporation through partnerships and equity stakes. Alliances are becoming ever more critical in the global auto industry, as manufacturers seek to pool resources and save costs. Ford has teamed up with Volkswagen, while Honda Motor Company, and General Motors Company are working together.

“The auto industry is facing a once-in-a-hundred changes and it’s difficult to compete on its own,” Kon said. “Our stance in making friends hasn’t changed; we will continue to cooperate within our group, with other original equipment manufacturers and cooperate with companies outside our industry.” – Bloomberg News.

The Nikkei 225 Index surged 0.87% to 23,532.66 on Friday (8 November) morning. The benchmark edged 0.11% higher to 23,330.32 in the previous session.

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