European Bond Issuance at Record €88bn Despite Low Yields
European high yield issuers and their bankers were able to celebrate at the end of 2013 after a record year for bond issuance that surpassed the value raised in any other year according to global credit analytics platform Debtwire Analytics.
‘FY13 High Yield Issuance Report’
shows that European companies under Debtwire coverage printed a total of EUR €87.6bn-equivalent of new paper in 2013, a 52.9% rise from 2012. The figure marked the second consecutive year of growth in issuance value, and, with the exception of a 13.1% year-on-year decline in 2011, continues the upward trend experienced in Europe since 2008.
A total of 174 issuers priced 254 new bonds, up from 163 bonds in 2012. The primary market boom was powered by a surge in debut issuers to 79 from 40 in 2012. These priced 105 bonds or 41.3% of the total brought to market in 2013.
Corporates gained the confidence to tap the high yield market from a combination of intense interest from institutions hunting yield, declining benchmark sovereign bond yields across Europe, and a drive by owners to optimise balance sheets and fund merger and acquisition (M&A) activity. Whether these trends continue in 2014 will depend largely on the near-term evolution of interest rates across Europe, which remained at historic low levels throughout 2013.
The European Central Bank (ECB) cut its interest rate to 0.25% from 0.5% in November 2013, citing an outlook of low inflation and economic weakness in the eurozone, and did not signal any change to the rate in its latest communication on 9 January. A further rally in eurozone bond markets since early January suggests that this could continue.
Strong investor demand also enabled the Spanish government to auction €5.29bn of new five-year and existing 2028 bonds at historically low yields, reflecting expectations of economic recovery and improving growth prospects in the country.
Similarly, the 10-year iTraxx Europe Crossover, Markit’s credit risk indicator for sub-investment grade companies, stood at 363 basis points (bps) at the beginning of January, down from 373bps at end-December and a continued fall from its 2013 high of 580bps on 24 June.