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.

Debtwire’s just-issued
‘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.

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