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December 20, 2012 6:34 pm
Overall global debt issuance rose in 2012 buoyed by a record year for junk bonds, but problems in the eurozone, regulatory concerns and economic growth worries curtailed sales in other parts of the bond market.
Global bond issuance increased 5 per cent to $5.95tn in 2012, with bond sales by sovereigns and agencies only marginally up on last year. Overall issuance by financial institutions was tempered by eurozone woes.
However, global high yield corporate bond issuance hit a record in 2012 as non-investment grade companies took advantage of strong investor demand and low coupons to hoard debt, according to data from Thomson Reuters.
With investors chasing better yielding assets in the face of record low rates on traditional haven assets such as US Treasuries and Bunds and significant pent up demand after a slower 2011, high yield corporate issuance rose 38 per cent to $397bn this year. In the fourth quarter, coupons averaged 7.604 per cent, shy of this year’s record lows, versus about 9 per cent over the past decade.
“Corporates have benefited this year from the fact that they are seen as a safe harbour. Companies have streamlined, their earnings are good and post Lehman they are leaner and meaner,” said Brendon Moran, global co-head of corporate origination, DCM at Société Générale. “There’s also been a theme of disintermediation of the banks. Companies are more inclined to go to the bond markets.”
In financials, the European Central Bank’s offer to provide three-year loans to banks across the eurozone via its longer-term refinancing operation at the end of last year averted a liquidity squeeze in Europe’s financial system but reined in overall supply.
However, it was ECB president Mario Draghi’s pledge in July to do “whatever it takes” to save the eurozone, accompanied a few weeks later by the launch of the ECB’s programme to buy the sovereign debt of ailing countries such as Spain and Italy, that helped remove the tail risk of a eurozone break-up.
ECB action paved the way for a rally that saw yields on eurozone peripheral government bonds drop and encouraged a spurt of issuance by banks in Europe.
“That both Irish and Portuguese issuers were recently able to access the unsecured market is strong testament to the current state of play and, barring any negative headlines, I don’t see that changing as we go into 2013,” said Melissa Smith, head of high grade debt capital markets, EMEA, at JPMorgan.
Examine the performance of investment banks over 2012
She said that while worries over economic growth and the fiscal cliff of tax rises and spending cuts in the US continued to hang over bond markets, action by central banks had given investors and issuers cause for some optimism going into 2013.
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