Data provided by Dealogic & CreditMarketDaily.com
The bar graphs below illustrate the trend in the growth and trends in issuance in the euro-denominated corporate bond market.
i) Investment Grade Corporate Issuance Since 2003
The financial crisis has ultimately been seen to have helped promote the corporate bond market as a major financial asset class. Zero policy rates and subsequent low bond yields have seen funds shift into the corporate bond market as investors search for ‘safe’ higher-yielding assets. Corporate bonds have been the chief beneficiary and the huge disintermediation in funding for the corporate sector has enabled the euro-denominated corporate bond market to grow in size from just Eur700bn in 2007 to over Eur2trn now.
ii) Monthly Investment Grade Corporate Issuance
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iii) US Corporate Borrowers as a % of Total Euro IG Issuance
There is no doubt that the record €320bn of IG non-financial issuance in 2019, smashing the previous record by a huge margin (2017, €275bn), was driven by the €100bn of deal flow from US borrowers. It’s clearly too early to suggest that this might the beginning of a more secular move which sees 30% of the market cornered by US-domiciled borrowers.
But we think that the ‘yanks’ will be in partial retreat in 2020. That’s because, in the large part, it was a case of ‘job done’, but the euro-denominated debt markets will remain an opportunistic port of call for reverse yankee offerings – and deals will continue to meet with a very receptive European investor.
Much of the deal flow from US borrowers was in large part M&A related but we think the 30% level of total non-financial borrowing is unlikely to be met within 2020 in the same size. The previous long term average was in the 12-18% area. However, the differential and directionality in dollar/euro interest rates, as well as untapped demand from European investors, could see the euro-denominated issuance proportion from US borrowers rise to the 20-25% area of the total over the medium term.