Vodafone led the charge last Friday, issuing the first sterling corporate bond following the BoE’s announcement. BMW, HSBC and BP all followed in the telecom giant’s footsteps, attempting to take advantage of record low corporate bond yields.
Shilen Shah, bond strategist at Investec Wealth & Investment, said the immediate impact of the corporate bond buying announcement has been encouraging.
“There was a degree of investor scepticism following the BoE’s corporate bond announcement given the illiquidity in the sterling market. Up until recently, large UK companies have found it more advantageous to issue in the euro or dollar markets. In that sense, credit spreads have tightened quite significantly.”
Banks and insurance companies, not included in the BoE’s list of corporate bond targets have also benefited from aggressively tightening credit spreads.
“The spread differential between those bonds the BoE is targeting and not targeting is likely to narrow,” Shah predicted. “Since the announcement, HSBC, Credit Suisse and BNP have all issued into sterling.”
The initial effect on high-yield bonds has been variable, according to Mitch Reznick, co-head of credit at Hermes.
“Sterling high yield rallied as well, but there was more discrimination in the rally,” he said. “Companies like Virgin and Travis Perkins are higher than they were before Brexit. However, more stressed high yield names like Matalan barely moved after the announcement.”
While the BoE’s corporate bond stimulus effectively jumpstarted the sterling market, Ben Edwards, portfolio manager within BlackRock’s sterling credit team, questions whether it was actually needed.
“In typical central bank fashion, they solved a problem that didn’t really exist," he said. "The BoE’s corporate bond buying program focused on high quality issuers, which had very little problem issuing at cheap rates before the announcement. Every good quality, non-financial company in Europe was looking at yields lower than they had ever seen before. This begs the question – what was the target of the programme?”
“We know the programme has had an immediate effect. The question is whether it can drive things forward,” he stressed.