EUROBONDS: Primary Bond Market Stalls As Growth Concerns Dominate

Concerns about the implications of slowing economic growth pushed European debt insurance costs higher Friday and left the primary bond market looking hopefully to next week for issuance.

There were no new bonds on offer despite the reopening of the investment-grade and high-yield corporate markets earlier in the week.

Dutch Telecom company KPN NV (KPN.AE) issued the first investment-grade corporate bond in over a month Thursday with a EUR500 million, 10-year deal. Before that, the last deal was on July 22 from BMW AG (BMW.XE).

The high-yield bond market reopened Wednesday, when Germany's Fresenius Medical Care AG & Co. (FME.XE) broke the silence from July 26.

Yet there is no guarantee these deals will encourage a rush of issuance next week, as caution surrounding the sovereign debt crisis and recession fears dominate, syndicate bankers said.

Corporate issuance next week "is contingent on how the market performs through the early part of the week," said one banker. Despite the deals this week, "we're still going to have to come in Monday and take a look at what the market is telling us," he said.

Another banker noted three sterling-denominated bond roadshows ended this week and should launch next week. Wessex Water Services Finance PLC, U.K. housing association Moat Homes, and Australian gas infrastructure company APA Group (APA.AU) are all in the sterling pipeline.

"The sterling market is going to be busy next week," the banker said, adding "the rest of Europe will remain issuing one-off deals."

There is also the potential for the first corporate hybrid bond next week, although given the nature of hybrids the timing is less dependent on market sentiment.

German utility EnBW Energie Baden-Wuerttemberg AG (EBK.XE) met with investors Monday through Wednesday for a potential hybrid bond, which combines features of debt and equity. These types of bonds pay a higher return and rank lower in a bankruptcy than standard corporate bonds, but strengthen a company's balance sheet and can be used to support its credit rating.

The latter is important for this deal, a banker working on it said. After the Fukushima disaster in Japan, the German government quickened its plans to phase out nuclear power, something the three credit rating companies have warned could put pressure on the county's utilities companies.

"The structure [of the EnBW hybrid] is completely new. Investors have asked for a bit more time to absorb this," she said.

Meanwhile, the sovereign and financials credit default swap indexes continued to hover around their all-time widest levels, according to data-provider Markit.

-By Art Patnaude, Dow Jones Newswires; +44 (0) 207 842 9259; art.patnaude@dowjones.com (Serena Ruffoni contributed to this report)

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