There’s a stampede in the European bond market to buy high-quality notes paying hefty yields.

Investors have bid a total of €1 trillion ($1.08 trillion) on corporate and sovereign debt this month, fueling a ferocious comeback in markets battered by last year’s selloff. The intensity of demand is so high that the average order book is more than three times the size of what’s available to buy.

That’s the second-highest ratio for any January of the past five years, according to data compiled by Bloomberg, and shows that investors are acting fast and early to fill their portfolios, especially with investment-grade debt. 

“Investors are taking on risk and there is good appetite,” said Stephanie Besse, global head of debt capital markets for corporates at Natixis CIB. “We have seen strong demand at the long end of the curve, which is a sign of trust in credit markets.”

Eoin Treacy's view

Investors neglected investing in Europe because of the assumption the region would experience a deep winter of discontent because of the impending energy crisis. Regional governments instead spent whatever was necessary to ensure that did not happen. That resulted in natural gas prices spiking during the summer. The price predictably collapsed when the price-insensitive inventory-build abated.

The spending attached to preventing an energy calamity has also contributed to inflationary pressures. Spain’s CPI surprised on the upside this week which will lend further fuel to the argument the ECB should persist in catching up to the Fed’s interest rate hiking program.
The European (German) 2-year yield continues to trend higher in a consistent manner which suggests the bond market expects further room for rate hikes in the near term.