The DESK spoke with Bank of America’s Julien Roman, head of EMEA DCM FIG Origination, Paula Weisshuber, head of EMEA Corporate DCM, and Adrien De Naurois, head of EMEA Debt Syndicate, to understand how issuers may face competition next year, and whether they have reasons to be confident in financing programmes for 2025.
The DESK: With so much government issuance planned for next year, how do you see corporates competing for investor wallet?
Adrien De Naurois: Sovereign issuance is expected to be relatively large, but it’s not the same picture everywhere across the EU and final targets have yet to be set.
Paula Weisshuber: One of the big themes this year for demand in credit, i.e. corporate and financial issuance, has been the decrease in government yields, which has led to a search for quality yield on the investor side, and therefore we’ve actually seen a lot of flows from government funds into investment grade (IG) credit, which has been one of the key drivers this year for the performance of the credit markets.
Julien Roman: There are distinct types of investors who buy sovereign, supranational, and agency bonds (SSAs) and credit, and there are not competing pound for pound for any financial institutions group (FIG) issue that comes to markets. But there is a bit of an overlap and it’s true that, there’s a phenomenon right now where over subscription levels for the lower beta FIG credits are slightly lower than we might have seen in the past because of that.
The DESK: What are the top concerns you see in financing programmes next year?
Julien Roman: 2024 FIG volumes of issuance are slightly down vs 2023 and we expect 2025 to be relatively flat to 2024, mainly driven by refinancings. In that sense, the ability for FIG issuers to complete their funding programmes in 2025 is not a concern, barring any major market shocks of course. In addition, we have seen a number of large issuers already undertaking some prefunding in the past few weeks for next year as a way to further de-risk their 2025 wholesale market funding programmes. I think the main decision FIG issuers will be facing next year will be timing of access to market. With spreads currently near or at historical tight it will be tempting for a number of issuers to follow the same strategy of the past couple of years to front load issuance with the objective of having completed a large part of their programmes by the summer. This would help protect them from potential market volatility next year. Others may take a more optimistic view on market access and spreads direction of travel and decide to opt for a more gradual funding approach smoothed out through the four quarters of the year. A lot will depend of course on each issuer’s wholesale funding needs – the larger the programme the more sensible it is to front-load issuance.
Paula Weisshuber: On the corporate side this year has been really strong in terms of issuance. On the Euro side, supply numbers are up around 25% from compared to last year. We’ve had quite a few record months, and a lot of issuers have really front loaded their funding needs, thinking about the elections in November, but also in the summer with the political situation in France and I now Germany. With that front loading, we’ve walked into the current issuance window expecting it to be fairly quiet, but then we’ve seen a really strong market, and a lot of issuers have made use of that, and already front loaded some of the issuance for next year. So a lot of corporates are going into this next year with a relatively comfortable funding position, having been able to access the market really successfully this year.
A few things to call out. One, it’s been a strong year again for debut issuers. That’s a theme that we expect to continue into next year as we continue to have a risk on sentiment. It’s an interesting one. If you look at different sectors and differentiate, I think it’s interesting to call out maybe three sectors. The first one is the auto sector – it was a good example of seeing event risk play out.
Another sector to point out is real estate, where we’ve seen a really strong comeback this year, with interest rates going down and their positioning being stronger again. We’ve seen record issuance in September of this year.
The third I would highlight is the utility sector, where the expectation is that there’s going to be over the coming years, a lot of supply, given all of the investment that’s being done across Europe into energy transition, renewable energy grids, etc. There’s a lot of thinking going on as to how to address the funding programs, how to compete with other issuers in the space with the expectation that for every single one of those issuers, the funding needs are going to fund really sizable capex programs. One that is an interesting comeback in the toolbox is hybrids. It’s been a strong year for high corporate hybrid issuance.
Adrien De Naurois: Frankly, I don’t think issuers are particularly concerned about raising funds next year. That’s partly because of experience. A lot of the treasurers and chief financial officers (CFOs) have been through the great financial crisis and obviously since COVID and so forth, there’s a decent amount of experience out there at a practical level. Geopolitical risks could really throw a spanner in the works, but more generally there’s a certain amount of comfort around the ability for everybody to fund themselves. Programmes are relatively contained, and we are at a part of the rate cycle which is generally favourable to fixed income, we’ve seen cuts and we hope for more.
