Euro zone bond yields fall as economic outlook darkens

 

AP News

Europe's outlook 'darkening,' ECB head hedges on recession | AP News

Recession risk, rate rises drive down private equity deal volumes to 4-year low

Patturaja Murugaboopathy

Mon, June 26, 2023 at 2:10 AM MST·3 min read

By Patturaja Murugaboopathy

June 26 (Reuters) - Dealmaking by private equity firms hit its lowest in four years, under pressure from high interest rates, recession fears, and a weak outlook for corporate earnings, although some analysts predict stored-up funding will drive a near-term rebound.

Private equity deal volumes slumped 63% from the same period last year to $293.5 billion, data from Dealogic showed.

Higher borrowing costs have led private equity to pursue fewer deals and avoid businesses with unpredictable cash flows.

Since the start of the year, buyout firms have been unable to secure cheap debt and have had to draw on their own funds, marking a departure from traditional leveraged buyouts.

"Rising interest rates have made private equity deals more expensive. Inflation has cut into target companies' profit margins," said David D'Urso, a partner at U.S. law firm Akin Gump Strauss Hauer & Feld. "Sellers are still expecting 2021-type valuations, which is not possible (due to the above reasons)."

Some analysts said an unfavourable market for initial public offerings (IPOs) contributed to the slowdown as private equity firms found it harder to exit investments.

This has complicated the financing environment for companies and startups that typically get bought or rely on funding from private equity firms, when banks have also slowed down corporate lending, analysts said.

"The implication for companies seeking private equity funding is simply less capital to go around, which could cause the weaker companies with short cash runways to be unable to continue operations," said Matt Farrell, senior investment manager at WE Family Offices.

Euro zone bond yields fall as economic outlook darkens

Statista

Chart: UK Only G7 Country Expected To Fall Into Recession in 2023 | Statista

Harry Robertson

Mon, June 26, 2023 at 2:04 AM MST·3 min read

By Harry Robertson
LONDON, June 26 (Reuters) - Euro zone bond yields fell on Monday as weak German survey data added to doubts about the health of the euro zone economy, after surveys late last week showed faltering business growth and services activity for the bloc.
Europe's bond markets showed little reaction to the aborted insurrection against the Russian state launched by mercenary chief Yevgeny Prigozhin over the weekend, with investors instead focused on European data.

Germany's 10-year bond yield was down 6 basis points (bps) at 2.298% on Monday after the Ifo Institute's German business climate index came in lower than expected in June.
"Sentiment in the German economy has clouded over noticeably," Ifo's president Clemens Fuest said.
The German 10-year yield fell 13 bps on Friday after survey data caused concerns about the health of the euro zone economy. Yields move inversely to prices.

Yields had been pushing higher over the last few weeks as central bankers have raised interest rates and highlighted the threat from inflation. But many investors are increasingly worried that high interest rates will push economies into recession.

• One sign of those economic concerns is the deep inversion of Germany's yield curve, with longer-dated yields well below those on shorter-dated debt, suggesting investors think rate cuts are coming.

Germany's 2-year yield was down 4 bps to 3.131% on Monday. The gap between the 10-year yield and the 2-year was at -84 bps, the deepest inversion since September 1992.

• European Central Bank policymakers will gather in the hills of Sintra, near Lisbon in Portugal, from Monday for the institution's annual forum.

Investors will be listening closely, with ECB President Christine Lagarde kicking off the event at 1830 GMT. . .
U.S. Federal Reserve Chair Jerome Powell, Bank of England Governor Andrew Bailey, and Bank of Japan Governor Kazuo Ueda will speak along with Lagarde at a panel on Wednesday.