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.
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ii) Monthly Investment Grade Corporate Issuance
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iii) US Corporate Borrowers as a % of Total Euro IG Issuance
A big theme in 2015-16 was the amount US domiciled corporates funded in the euro-denominated debt markets. As shown in the chart above, it was a record 26% of the total volume in 2015 and 22% in 2016. Low rates everywhere, but lower in Europe along with low spreads made it attractive for US corporates to borrow in euros (even when swapped back to dollars).
Q1 volumes were particularly high as we ought to have expected given the extreme bullishness – into the ECB QE actions – of the sovereign and corporate bond market. With rates/yields increasing in the US now, and forecast to a little higher against lower yields (possible rates) in the Eurozone then we could reasonably expect a fairly significant level of borrowing again from US entities in European debt markets. Still, the long-term average has been 14-15% and we might well revert back to that depending on how US economic policy plays out.