Corporate leverage stokes credit sell-off fears

摘要

A European corporate bond borrowing spree on the back of cheap funding costs has led to increased demand for cross-asset arbitrage, amid concern that spreads at current levels are insufficient to compensate for the risks of excessive leverage. European borrowers sold a near-record amount of bonds in recent weeks, with €18bn of issuance in five days in mid-May comprising the second busiest week on record. The busiest week was in March. At the same time, CDS notionals were up 23% compared with the same period last year, according to ISDA Swapslnfo. One driver of the issuance bonanza and increased demand for credit protection is the European Central Bank's corporate bond buying programme, which promises to deliver an additional €20bn of liquidity a month from June. Before the financial crisis much of that liquidity ended up in leveraged products, but with that market now subdued the leverage instead is being assigned to corporate balance sheets.