Lowest Spreads and Flexible Terms.
Record gap between bonds and WIBOR is a problem for the financial market
Government and corporate bonds are drifting further apart
The gap between the yield on 10-year bonds and the six-month WIBOR rate reached 2.66 percentage points on Tuesday. That is an unprecedented level. Even after the yield fell to 6.15 percent, the gap still stood at 2.3 percentage points, well above the long-term median of 0.8 percentage points.
This also matters for people buying corporate bonds. If company securities pay interest based on the WIBOR plus a margin, and government bonds offer almost the same nominal yield, investors start to wonder whether the extra issuer risk is worth the added return.
Emil Szweda, chief analyst at Michael / Ström Dom Maklerski, notes that this setup makes it harder to place new corporate issues. He also points to two recent examples. VeloBank offered 10-year subordinated notes with a margin of 2.5 percentage points, while Bank Pocztowy earlier sold 4-year senior bonds with a margin of 2.2.
For VeloBank, this was a market debut that usually draws the attention of investors looking for new names in the market. Bank Pocztowy, controlled by the PKO BP group, has a business model heavily based on Polish government debt, so for part of the market it is sometimes seen as an indirect exposure to sovereign bonds.
Aside from those issues, since the selloff in government bonds began, there have been only a few medium-sized corporate offerings worth 100 mln zł or more. Of those, only AB SA, carried out in early July, was aimed at typical institutional investors. The remaining offerings were directed at retail clients, had a mixed format, or came from banking groups and leasing companies.
The analyst believes the selloff in government bonds has already reduced the number of medium and large corporate issues. On Catalyst and in the over-the-counter market, however, there is no clear sign of price adjustment yet, because demand still exceeds supply. Investment funds are seeing inflows, and issuers are in no hurry to come to market.
Behind all this remains the question of whether the rise in government bond yields will translate into higher funding costs for companies. Szweda writes that one possible channel is a rise in WIBOR rates, and therefore in interest rates. The chances of that scenario increased after the Fed decision, modeled on the ECB, after core inflation in Poland rose to 3.3 percent and with oil still clearly above 100 USD per barrel, despite recent declines.
In practice, this means the corporate debt market may continue to react with a delay for some time. Some companies can postpone issuance, while banks are still competing to finance small, medium and large firms. But with such a wide gap between government bonds and the WIBOR rate, pressure to adjust financing terms may keep building.
The calendar for 21-27 September includes many interest and bond redemption dates, including for Archicom, Bank Pekao, mBank Hipoteczny, PKO Bank Polski, Ronson Development, Vehis Finanse, Ghelamco Invest and other issuers. For the market, this is a sign that despite high sovereign bond yields, the corporate segment remains active, although issuance conditions may become more difficult over time.
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