Companies are paying to play in inverted debt markets

A SHARP rise in bond yields over the past month is not stopping European companies from selling new debt, in the way higher borrowing costs did last year. Instead, borrowers are adapting issuance to take advantage of an inverse government curve, where yields are lower at longer maturities than on shorter-dated debt.

But they are increasingly having to pay to play to retain investor interest. It shows that issuers and buyers are both being flexible in reacting to the changing interest-rate environment.

The trend this year is towards longer-dated new corporate bond deals. Typically, borrowers have to offer higher interest rates to borrow for additional years. However, the recent surge in interest rates is requiring a different type of incentive – a wider new issue concession in the yield premium offered over an issuer’s existing debt.