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Primary debt survey 2013: Bankers feast as investors are left with crumbs

Activity in primary debt capital markets has never been greater. DCM desks are having record years. Investors are faced with a quandary: stay in, and stay with the rally; or try to get out, before the market turns. But those considering the latter option may be caught out. Even borrowers are getting worried about liquidity in the secondary markets.

Is this as good as it ever gets in the international debt capital markets?

There’s continuing and large-scale central bank quantitative easing; new economic data soft enough to suggest continued accommodation, but not disastrous enough to herald economic catastrophe; reduced new-issue volume from a deleveraging banking system creating a scarcity of paper; and investors desperately searching for yield. These have all combined to create near-perfect conditions for a wide range of borrowers.

Bond deals from risky issuers such as peripheral European sovereigns, peripheral and emerging market corporates and banks, and from high-yield borrowers that might not have been able to access the markets at all a year ago, are regularly being heavily over-subscribed. And this exuberant investor demand comes even when borrowers offer pricing that tests new lows every day for absolute yields and spreads to risk-free benchmarks. For the leading debt capital markets banks, this has been good news. With one important client group – namely banks – issuing far less debt, global DCM volumes were down by 14% overall in the first quarter of this year compared with the first quarter of 2012, according to Dealogic.

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