Thomson Reuters data released on Friday showed that the average coupon for euro-denominated corporate debt issued in 2012 is just 4.53% - the lowest annual average ever in that market.

The improvement came despite strong supply, in particular from investment-grade corporate issuers. More than EUR7bn was priced in the high-grade European corporate bond market this week, making it the busiest week for the primary market since the second week of January.

Meanwhile, new issue concessions versus secondaries, which had been prevalent over recent months, all but disappeared for borrowers in many asset-classes.

"We have seen a jump lower in terms of the concessions issuers are having to pay, from them having to offer something to zero or even negative new issue premiums," said Jean-Marc Mercier, global head of debt syndicate at HSBC. "Despite this, investor demand has been extremely strong because of the cash surplus investors have."

Transactions for the likes of Telstra, Saint-Gobain, Unibail and Roche priced either in line or through secondaries. In the case of Roche, the 18bp over mid-swaps spread was the lowest offered by a corporate in almost four years.

"Two months ago Telstra would have come with a 20bp concession," said Patrick McCullagh, head of EMEA credit research at Schroders. "It's the first time this year that I've seen a corporate deal price through its secondary curve, and its bonds tighten in as well."

But corporates is not the only place where the trend of shrinking new issue premium has materialised. A three-year issue for Bank Nederlandse Gementeen attracted in excess of USD4.3bn of demand, allowing the borrower to price its largest ever US dollar benchmark at USD2.5bn. BNG was able to price the deal at 68bp over mid-swaps which was flat to 1bp through the borrower's secondary curve.

Investors were also keen to load up on covered bonds. BNP Paribas priced a EUR1bn 10-year at 85bp over mid-swaps which was 5bp to 8bp inside the bank's secondary curve. The coupon at 3.125% was also lower than what the bank paid in January last year for a July 2021 at 3.875% and more than 100bp tighter than where CFF priced a 10-year in January .

SCRAMBLING AROUND FOR PAPER

Market participants agreed that issuers' ability to call the shots when it came to pricing was more a symptom than a driver.

"We have seen strong buy-side demand for some time but liquidity in the secondary market is limited so more and more primary issuance is being used for reference points, new issue premia to secondary issuance becomes less relevant and secondary levels less pertinent than they have been historically," said Chris Tuffey, co-head of credit capital markets at Credit Suisse.

HSBC's Mercier agreed saying that the only way for investors to get exposure was through primary as there was little dealers inventories.

A report by research outfit TABB Group published this week showed that corporate bond inventories on banks' balance sheets - based on the Federal Reserve data - had not been so low since 2002 and stood at USD46.7bn, down 46% from the previous year and 22% below the crisis low of USD59.8bn.

The strong performance in the equity market with the S&P breaking through the 1400 barrier for the first time since June 2008 and credit indices with the Main and Crossover breaking through key levels of 125bp and 540bp respectively is a bullish signal in the near to medium term, and primary will be the place to be to benefit from this.

Given that the secondary market is still relatively illiquid, the new issue market will allow investors opportunities express their bullish sentiment away from the credit indices.

"We are approaching levels in the indices that we had not seen since the middle of last year," said HSBC's Mercier. "The question is whether the paradigm has really changed and while the Lehman-like disaster scenario appears to have been taken off the table, we could still go wider. Having said that, if we manage to break through some of these key levels, we could see an enormous jump tighter."

Credit Suisse's Tuffey added that investors were now a lot more focused on relative value than they had been when the market was in full grip of the eurozone sovereign crisis. "There is positive discrimination in terms of what investors are buying." (Reporting by Helene Durand and Josie Cox, Additional reporting by Natalie Harrison and Aimee Donnellan)

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