* First European AT1 since mid January
* Demand for Deutsche Telekom reaches 18bn
* Aggressive high-yield structures return
LONDON, March 14 (IFR) - European credit markets roared backto life on Monday, as borrowers capitalised on demand for paperfollowing the European Central Bank's stimulus measuresannounced last week.
A slew of deals, including the first Additional Tier 1 issuefrom a European lender since the middle of January from UBS anda three-tranche benchmark for Deutsche Telekom, attractedmulti-billion books.
"Investors' response to Deutsche Telekom, which is somewhata European bellwether, gives us a good sense of what is to come.There is a lot of pipeline that will now unlock," said JonathanBrown, global co-head of investment-grade syndicate at Barclays.
Issuers are looking to make the most of the positivesentiment in the market since the ECB announced further stimulusmeasures last Thursday.
UBS Group launched a US$1.5bn perpetual non-call five-yearAT1, drawing more than US$7.8bn of orders by mid-morning.
The risky end of the bank capital market was effectivelyshut just a month ago, as concern around banks' ability to paycoupons exacerbated thin liquidity in the nascent asset class.
"Pre-ECB, who would have thought we would have had an AT1today?" said a senior syndicate banker. "It's extremelyencouraging to see that market reopen."
At 6.875%, the pricing level is flat to UBS's last AT1, aUS$1.5bn perpetual non-call 10 priced in July last year,alleviating some concerns that the repricing in February wouldmake the market unaffordable for issuers.
"Bank capital is one of the biggest beneficiaries and wehave seen bonds rally massively since last week, from senior toTier 2, insurance subordinated and AT1," said Brown.
BUN FIGHT
The investment-grade corporate market looks to be one of thebiggest winners, where news that the ECB is readying bond buysin the sector has given the pipeline a shot in the arm.
"With the prospect of the ECB buying, we will have somestability in the market and some of the pent-up supply will getdone. Investors will look to primary to source paper, add onmore risk and put cash balances to work," said David Riley, headof credit strategy at BlueBay Asset Management.
Deutsche Telekom's 4.5bn three-tranche transactionattracted 18bn of demand - the largest book for a purelyeuro-denominated corporate deal in recent history, according toa lead bank.
BP and Fluor are already tapping investors, while unratedOutotec Oyj will test the waters for the first euro hybrid ofthe year after completing a roadshow in the coming days.
"The deal will be driven mainly by domestic demand Isuspect, but it could spur more hybrid issuance, althoughinvestors will still be very apprehensive so it may take sometime," said a banker away from the deal.
Volatility has soured the hybrid market with no issuanceprinted this year. Last year by this point some 12.8bn of paperhad priced.
The renewed strength of demand for vanilla corporate bondswas amply demonstrated on Friday. A 600m deal from French autopart supplier Valeo drew 7bn of orders, the biggest book for asingle-tranche corporate issue this year.
Meanwhile, in the European high-yield market Parex isbringing the first dividend recapitalisation deal in months - acontroversial practice where a company's owners raise debt topay themselves a dividend.
LeasePlan's revived 1.55bn LBO deal showed the junk bondmarket was very much open for business at the end of last week,pricing much tighter than where it was indicated beforeunderwriters pulled it in February.
Emerging markets borrowers are also making their presencefelt, with Bulgaria opening books on Monday for a dual-trancheeuro benchmark and junk-rated South African paper firm Sappiannouncing a euro mandate.
Whether it will last remains to be seen, however, and marketparticipants remain cautious.
"Whether this is a turning point for European credit andrisk assets depends on the fundamentals," said BlueBay's Riley.
"The ECB responded as it did because of growth concerns.What was announced was positive for European credit, however weare cautious not to get suckered into the current rally.
"Investors had increased their cash balances and reducedtheir exposures to market-sensitive instruments because of thesell-off and there is a danger that, as they look to cover theirshorts, they get suckered into the rally." (Writing by Robert Smith, Reporting by Laura Benitez, AliceGledhill, Helene Durand, editing by Julian Baker and Sudip Roy)