One of the byproducts of Central Banks low-rate policies (and corporate asset purchases) is the glut of BBB-rate debt (largely by energy companies such as Mexico’s PEMEX and the US energy company EPD). Banks also populate the B-rated bond list.
Of course, one of the more interesting bond types is the contingent convertible bond or CoCo (also known as an enhanced capital note (ECN) is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs). Banca Santander is a Spanish bank that issues CoCo bonds.
(Bloomberg) — The market for bank capital debt was shaken last month when Banco Santander SA defied precedent and declined the option to call a bond. Keep an eye on the next securities due to be called.
Santander skipped an option to call 1.5 billion euros ($1.7 billion) of perpetual contingent-convertible notes, or CoCos. The rationale was that current market-funding costs meant it could be cheaper to extend the existing notes than redeem them and sell new ones.
As the ECB continues to repress interest rates, incentive remains in. Europe (and the US) to continue to issue corporate bonds .. and CoCos.