Jim Armitage: That 'wafer-thin mint' moment is a worry

Outlook Quantitative easing (QE) produces all sorts of weird effects. One of the weirdest has been the trillions of dollars big business has been able to borrow, dirt cheap, on the bond markets.

As falling yields on government bonds echo through super-low interest rates in the corporate debt world, companies have been stuffing bonds into investors' maws like John Cleese's maitre d' and Mr Creosote.

In June, the Bank of England's QE largesse enabled Vodafone to raise $6bn (£4bn) in bonds to fund its takeover of Germany's Kabel Deutschland. Danke schön, said the German shareholders. Then, last night, Vodafone's best buddy, Verizon, raised the biggest sum ever – $49bn – to fund its takeover of Vodafone's stake in it. Ta very much, say the Brits.

The appetite among investors to buy this corporate debt is unheard of. Verizon's New York bankers banging the drum for the bond issue were originally planning a roadshow this week to attract investors in Europe.

In the end, there was no need. So many applications flooded into Wall Street that they cancelled their flights to London.

The question now: doesn't this rush feel like that insane microsecond before the bubble bursts and our pension funds suffer another round of heavy losses? Are we at the "wafer- thin mint" moment for the bond market?

We asked the same when Apple borrowed enough to buy a small African state in April.

That $17bn binge was another record bond issue and investors in those bonds are already sitting on losses as the markets eye Federal Reserve governor Ben Bernanke's next move on the QE tap. Doommongers fret that so-called "tapering" of QE will kill investors' appetites for bonds stone dead.

The truth is probably a bit more complex and all depends on the bonds' price. Unlike Apple (and Vodafone, for that matter), Verizon had to pay a hefty premium of up to 2.25 per cent more than the yield (bondspeak for "interest rate") on US government bonds. This reflects two things:

First: Verizon appreciated if it wanted to stuff investors with such vast helpings of debt in one go it would have to pay them a bit extra to do so. Second: investors were chary about lending so much when QE is coming down the tracks.

They needed the reassurance of a better deal to reflect the fact that they're lending in a market moving against them.

This wasn't the case in April, with Apple – hence the smell of singed fingers on that deal, or Vodafone two months later.

In other words, although the Verizon bond sale is vast, the market is learning to price more realistically for a more normal world. A world where the Fed is not tampering with the market in a way that stops price reflecting risk.

Corporate bonds may well be heading for their Mr Creosote moment, but when the awful contents of the last few years' debt binges emerge for all to see, Verizon bonds' losses may not be the worst.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Life and Style
ebooksA special investigation by Andy McSmith
Christian Benteke of Aston Villa celebrates scoring the winner for Aston Villa
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Bill O'Reilly attends The Hollywood Reporter 35 Most Powerful People In Media Celebration at The Four Seasons Restaurant on April 16, 2014 in New York City
media It is the second time he and the channel have clarified statements
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn