New issues stole the show in the European corporate bond market on Wednesday as Air Liquide saw good demand for a one billion euro deal despite pricing described as aggressive, and Telecom Italia prepared a sterling bond.
The secondary market took a back seat. The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 55.3 basis points more than similarly dated government bonds at 1456 GMT, 0.9 basis point less on the day.
Traders said European corporate bonds had rallied three to four basis points earlier in the day but had "hit a brick wall" in the afternoon, retreating around a basis point from their highs.
"We're tracking general market sentiment following Greenspan's comments yesterday which have definitely eased fears of a 50 basis point rate hike this month," said a trader.
"That said we are still at the tight end of recent ranges and people still think there is a shake-out of the leveraged trades, the carry trades to come."
US Federal Reserve Chairman Alan Greenspan said on Tuesday "inflationary pressures are not likely to be a serious concern in the period ahead" and rate increases are "very likely to be measured over the quarters ahead."
Despite the better tone, bankers say it is difficult for investors to find value in the secondary market at present, leading to a focus on new issues.
Industrial gases maker Air Liquide SA sold a one billion euro bond split into two parts on Wednesday, with investors attracted to the rarity of the credit even though bankers admitted the pricing was aggressive.
Air Liquide sold a six-year bond and a 10-year bond of 500 million euros each, with proceeds to be used to refinance part of the debt raised to acquire some of Messer Griesheim's assets.
Demand for the bond totalled just over 1.2 billion euros, roughly evenly split between the two tranches, said Melanie Czarra, managing director of corporate syndicate at Citigroup, one of the banks managing the sale.
The six-year bond was priced at 25 basis points over mid-swaps, a benchmark for corporate borrowing, in line with the spread announced on Monday. But the 10-year bond came in at 33 basis points over swaps, two basis points tighter than the earlier guidance.