One feature that’s been underplayed in the Covid-19 crisis is this: through all the ups and downs (mostly downs), London’s markets have functioned well.
Even as FTSE-100’s behemoths were seeing 20% tumbles in minutes, the City handled it, matching buyers and sellers, with no need for trading halts and little evidence of bad pricing.
Bond markets have been in tip-top form, too, both in London and the US. Data today shows companies have successfully raised a record $752 billion to build their stricken cash buffers.
True, markets looked like seizing up during that scary point a fortnight ago before the Fed intervened to inject liquidity. But that was about releasing the pressure valve on the availability of dollars — not a London market issue per se.
Investment grade company debt has become a tasty asset class for big funds, with investors grabbing returns of nearly 4%; an attractive reward for relatively little risk.
Even junk bond markets — not big in the UK and Europe, but weighty in the US — may be reviving after a total coronavirus freeze-up. Pizza Hut owner Yum Brands found strong demand for a $600 million issue on Monday. (Don’t hold your breath for more, though. Yum had to pay 7.8% and got a rollocking from Moody’s for upping its leverage.)
Still, if anything’s certain in these times, it's that we’ll all be emerging with more leverage. Households; companies; governments.
To avoid secondary crises further down the line, it is vital to price that debt correctly.
We need London’s liquid markets more than ever.