Thursday, September 23, 2010

Trans-Atlantic Credit Miracles

EconompicData had a story of Microsoft borrowing on the CHEAP yesterday. However, on the other side of Atlantic, the credit affairs, according to Suki Mann, the credit strategist at Societe Generale, less bullish than the headlines from the other side of pond suggest:
European credit investors are getting a little bothered by the poor performance of new issues at the moment, and rightly so. The market actually might not be in great shape. Everybody thinks everybody else is a buyer - hence the oversubscription levels and no follow through. The problem is that the issues are priced rich but a fragmented European market place continues, as always, to get dragged in. There is an almost blasé attitude developing in some quarters that we will be ok in a few weeks when the deals will get absorbed better. Some will but we shouldn’t take it for granted that they'll all trade through reoffer. Short memories only go back to 2009 when that was the case - uniquely; in the history of the credit market there were many more years when this wasn’t so. All deals won’t/shouldn’t necessarily trade through reoffer levels. After the Fed communiqué on Tuesday, we’re now prepared for yields to stay low for longer. That does mean a continued demand for (higher yielding) credit and this will - unfortunately - support the issuer/syndicate axis for deals to continue to be priced rich versus secondaries. Broadly, there is increasing concern on the level of supply and how much we might get going forward.
Also equities are less enthusiastic on the European side ...

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