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Financials

UPDATE 1-Deutsche Bahn sells first euro negative-yielding corporate bond

(Adds context and market reaction)

LONDON, July 12 (IFR) - German railway operator Deutsche Bahn became the first non-financial company to publicly sell a bond with a negative yield in euros on Tuesday, giving the market a taste of things to come amid the ECB-led rally.

Borrowing costs have hit record lows after the European Central Bank made its initial announcement regarding corporate purchases on March 10, which saw yields on more than a dozen eurozone companies’ existing bonds fall below zero.

International companies Sanofi, Engie and Unilever - have already sold 0% coupon bond issues with barely positive yields.

Deutsche Bahn is 100% state-owned, leading some to question whether it counts as being the first ‘corporate’ issuer to sell negative-yielding debt.

But Deutsche Bahn’s debt has regularly been sold to investment-grade corporate investors, with its deals managed by the corporate banking syndicate teams.

MORE TO COME?

The ECB’s aggressive approach to its corporate sector purchase programme is expected to spark more sub-zero yielding debt as spreads continue to grind tighter.

The ECB said on Monday that it had bought 1.676bn under the CSPP in the week to July 8, bringing purchases to 8.474bn since the ECB began its programme on June 8.

But heavy ECB buying has done little to spur new issuance, with just 13bn of investment-grade corporate debt printing since the ECB began buying corporate bonds - only 3bn more than in the same period of 2015, according to IFR data.

“We’re banging on the door of some issuers to encourage them to sell bond deals while the market remains stable, but not all are listening,” one banker away from Deutsche Bahn’s deal said.

“But as we’ve seen, investors are desperate to buy and the market is stable for now so it makes perfect sense to take advantage it all.”

The Swiss bond market is no stranger to this environment however, with two international companies selling negative-yielding bonds in Switzerland last year, where central bank rates are even lower.

INVESTORS STILL SEE VALUE

Deutsche Bahn began marketing an expected 250m five-year deal at mid-swaps plus 20bp area, before setting guidance for an increased 350m deal at mid-swaps plus 16bp area with a plus and minus 1bp range.

Joint leads BayernLB and Raiffeisen Bank set the final spread at plus 15bp as orders reached 840m.

The deal priced with a negative 0.006% yield and a 0% coupon.

Deutsche Bahn is rated Aa1 stable/AA negative by Moody’s and S&P.

The issuer was last in the market on June 30 to print a 750m 15-year deal at 26bp over mid-swaps. The deal is now bid at plus 14bp, according to Tradeweb.

“I’m not sure why they’re issuing so soon, probably because they can and there is demand,” one investor who placed an order for the deal said.

“Compared to its last deal today’s price at plus 15bp still looks cheap on the curve and offers some value.” (Reporting By Laura Benitez, editing by Robert Smith)

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