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Yield hunt triggers short-lived stampede

The new euro-denominated 30-year bond market found natural buyers in insurers with long-term liabilities. But when the market broadened into a rush, things rapidly went wrong.

30-year euro corporate market stampede short-lived

THE 30-YEAR euro-denominated corporate bond market suddenly rocketed into life at the start of this year but its sparkle faded just as quickly.

The first e400 million deal from Olivetti, with a 7.75% coupon, hit the market on January 10. Just five days later France Telecom followed with its first benchmark, raising e1 billion. What followed was quite remarkable in a new and potentially risky market: a surge of issuers rushed to take advantage of investors' desperate thirst for yield in a low-interest-rate environment. It seemed that even triple-B issuers had it made - seeing unprecedented demand for a maturity that would have been impossible to achieve a few months ago - with every bond two or three times oversubscribed.

This stampede culminated in e1.85 billion of issuance in the first week of February. But by February 7, the euphoria was replaced by what looked like an attack of investor paranoia as corporate spreads on the 30-year bonds began to seesaw worryingly and to underperform the 10-year sector. Issuers started to pull upcoming deals.

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