A looks at financial data on computer screens on the trading floor at ETX Capital, a broker of contracts-for-difference, in London, U.K. on Friday, Oct. 14, 2016. It's been a tumultuous two weeks for the pound, and all indications are that traders will have to get used to the volatility. Photographer: Luke MacGregor/Bloomberg
Policymakers have been encouraging groups to cut their dependence on bank lending and sell debt instead © Bloomberg

Sales of corporate bonds is on course for a record year, as stimulus from the European Central Bank and extremely cheap borrowing costs propel companies into the capital markets.

There have been €339bn of non-financial corporate bonds sold in euros so far in 2017, according to Dealogic data, putting issuance on course to surpass last year’s record of €345bn.

A decade of monetary stimulus from major central banks, including the ECB, has swelled borrowing to levels few would have imagined before the global financial crisis. In 2007, corporate issuance in euros was less than half its current level.

The dramatic increase in sales by companies comes alongside a drop from the continent’s banks. Lenders sold nearly €500bn in unsecured bonds in 2007, whereas this year they have issued just €299bn — their lowest tally since 2013.

“The QE buying programmes have led to tremendous tightening of credit spreads and opened the door to many corporates for cheap funding,” said Armin Peter, global head of syndicate at UBS. “The other side is financial institutions have been focused on building capital, and have benefited from cheap central bank funding providing them funding at conditions you cannot even reach in the public market.”

€339bn

Value of non-financial corporate bonds sold in euros so far in 2017, putting issuance on course to surpass last year’s record of €345bn

Financial institutions have been under pressure to shrink their balance sheets, while policymakers have also sought to encourage companies to cut their dependence on bank lending and tap the debt markets.

While there was some anxiety among investors about how aggressively the ECB would scale back its bond-buying programme, the central bank’s decision late last month to extend QE until at least September, albeit at a lower rate of €30bn a month, has proved a fillip for the market.

Last week was the busiest week for corporate bond issuance since June, Dealogic data shows. Average yields on a widely tracked index for European high-yield debt also fell below 2 per cent in early November, though they edged higher towards the end of the week.

The ECB has been buying corporate bonds since 2016, and now holds more than €120bn. This compares to €1.8tn of government bonds. It is not buying unsecured bank bonds, but holds close to €250bn of covered bonds — a kind of instrument issued by European banks.

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