The economic crisis triggered by Covid-19 is starting to show itself in all its seriousness corporate bonds have become for many big names one of the ways to fight the recession.
There is no sector of the Italian economy that has not suffered and is not suffering the consequences of a pandemic that brought the world to a halt. From tourism to cars, from manufacturing to air transport, losses have already broken any previous record and companies - large and small - are trying to get back on their feet by exploiting all the elements at their disposal: from the reduction of spreads supported by the ECB bazooka , to the aid launched by the Government through the various decrees (Cura Italia, Rilancio and Liquidità).
In the range of solutions, the place of honor undoubtedly belongs to corporate bond issues which have accelerated sharply in recent weeks, touching levels never seen before. Large companies are trying to finance themselves on the market, asking investors for the liquidity necessary to go ahead and, at the same time, trying to protect themselves in the event that a second wave of infections were to overwhelm the country again, with even more serious consequences for the economy.
CORPORATE BOND: ALL THE BIG ON THE MARKET
Until recently, 2019 was described as the "year of records" for corporate bonds. Last year, Italian companies placed €27,4 billion in bonds on the market, a figure that represents a 79% growth compared to 2018.
in the first six months of 2020 the value of issues has already reached 14,5 billion euro and the second semester opened with three giants of Piazza Affari which announced the issue of corporate bonds. In detail, on July 1st Leonardo has placed on the market 500 million new bonds maturing in January 2026 and with a fixed rate coupon of 2,375%, Inwit made its debut on the capital market with bonds for 1 billion euros maturing in July 2026, while Erg approved the renewal of the medium/long-term non-convertible bond issue programme, increasing the total maximum amount to 2 billion euro.
The day before – it was June 30 – the announcement of Fiat Chrysler who decided to approach investors with a euro bond in three tranches with a total value of 3,5 billion euro and coupons between 3,375% and 4,5%. Requests exceeded supply by three times, reaching €9,5 billion. FCA was preceded by a week Ferrari which successfully placed a 650 billion bond (it was 500, but given the requests the amount has been increased) with a yield of 1,5%,
The list of placements is long and varied and ranges from utilities (not only Erg, but also Italgas e Snam) to insurance (with Generali which announced the repurchase of three subordinated securities and the launch of the second green bond), passing through the oil sector (last May 11 Eni issued two fixed-rate bonds with maturities of 6 and 11 years for a total of 2 billion) and the banks (Unicredit issued a Tier 2 subordinated bond to institutional investors for a total amount of 1,5 billion dollars receiving requests for 5,5 billion).
OUTLOOK FOR 2020
So will 2020 be the new "record year" for Italian corporate bonds? It's not for sure. In the first half of the year, various elements influenced the race for bonds, above all the narrowing of the spread of Italian government bonds favored by the enormous stimuli of the ECB. According to the Borsa Italiana data, on 2 July the spread between 168-year BTPs and German bunds stood at 5 basis points, the lowest since XNUMX June.
In the second half, however, the situation could be different. The grip of the crisis could become even tighter, significantly affecting the debt position of companies and therefore their ratings. "Corporate issuance of investment grade and high yield debt will remain contained - reads a report by Unicredit Research - since corporate policies are focused on safeguarding liquidity, less than investments".
A LOOK AT THE USA
The fervor about corporate bonds is not just an Italian characteristic. Even abroad, the movements are beginning to be relevant. Just think that two weeks ago Amazon placed bonds for 10 billion dollars at a rate of 0,4%, the lowest yield ever recorded in the history of US corporate bonds, just two tenths of a point higher than that guaranteed by government bonds of the same maturity issued in May from the US Treasury. To find a similar level it is necessary to go back almost eight years, when the Federal Reserve decided to bring the cost of money to zero to favor the recovery of the economy grappling with the subprime crisis. Well, despite the low return, demand has exceeded supply three times, a sign of the fact that the market, with the Covid-19 pandemic which has not yet subsided in the US, is looking for "safe havens" in which to own money.
Not only that, the success of the Amazon bond was once again favored by the American central bank which began to purchase corporate bonds as part of a 750 billion extraordinary plan dollars launched last June 16th. The institute has already begun its corporate bond shopping, which will continue in the coming months, and on Tuesday it announced that it had bought securities of 86 companies (out of 750 admitted) for a total amount of 429 million. Among them stand out big names such as Apple, Coca Cola, AT&T, Exxon, Walmart, Microsoft, Pfizer, General Motors, Ford, Philip Morris, Berkshire Hathaway Energy, Toyota, Volkswagen and Daimler.
