The near shutdown of the investment-grade corporate bond market during the past few weeks has led to much discussion of whether the market is witnessing a credit crunch. The reality appears to be something more benign. Although there is less liquidity, amid difficult primary market conditions new issues can still be sold – at the right price.
"The main story in the primary market is one of a very fast deterioration of liquidity," says Geert Vinken, global head of syndicate at Barclays Capital. "The days of order books that are five, eight or 10 times oversubscribed are over, it seems. Although some liquidity has been withdrawn, there has not been a complete collapse in investor confidence, simply a repricing of risk."
Toby Nangle, head of global aggregate business, fixed-income and currency team at Baring Asset Management, says: "Credit crunch is something I think that is quite specific – you don’t get BBB rated bonds pricing during a credit crunch. It looks like the market is beginning to discriminate at last."
He continues: "We are starting to see some signs of credit rationing for the riskier deals, and have counted 28 corporate bond or loan deals representing around $17 billion that have been pulled since June 22.