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Investment grade bonds: Volatility returns

Market remains open but substantial new-issue premiums return.

The broader implications of the crisis in the financial sector and the uncertainty that it brings to the global economy are starting to feed through to issuers of all types in the European investment-grade world. Borrowers are keener than ever to take on liquidity ahead of the year-end. Indeed primary market bankers are positive about their pipelines, but – with investors nursing significant losses after going long credit this autumn – significant new-issue premiums are back.

"I think that at the beginning of this crisis, even when banks started to shake, many corporate treasurers thought: ‘What does this have to do with me?’ But now they increasingly realize the potential effects the credit crisis could have on the wider economy and that long-term capital is something they should take when it is available," says Eirik Winter, co-head of European fixed-income capital markets at Citi.

It marks a significant change of stance for European corporates that have historically been unwilling to accept paying a new-issue premium over their credit default spreads. At the end of the summer when the financial markets’ dislocation appeared to be at its worst, borrowers such as Enel and AstraZeneca printed new issues some 45 to 50 basis points back from CDS levels.

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