Companies issued US$3.2 trillion in bonds in 2013, more than triple the total of US$900bn in 2000, as they sought to fill funding gaps left by decreasing bank lending said the International Organisation of Securities Commissions (IOSCO).
In its report, Madrid-based IOSCO said that central banks had stoked investor demand for corporate debt by keeping base interest rates at record lows. Bonds issued by non-financial companies are seen as “reasonably safe investments that still offer some yield,” it added. The size of the corporate bond market reached US$49 trillion in 2013.
Central banks have kept interest rates at low levels to stimulate economic growth in the wake of the 2008 financial crisis and collapse of Lehman Brothers Holdings in September that year. The Bank of England (BoE) reduced the UK benchmark interest rate to 0.5% in March 2009 and has maintained it at the same record low level ever since.
“Growth in loan provision by banks to non-financial firms in the US and Europe declined markedly after the onset of the crisis,” IOSCO said. “This contrasted with strong growth of corporate bond markets outstanding for non-financial firms.”
High-yield corporate bonds had a default rate of 3% globally in 2012, IOSCO said, compared with 4% for non-performing bank loans.
Corporate debt issuance will continue to grow, partly to service the existing outstanding bonds. Around US$11.3 trillion worth of bonds will mature over the next seven years, IOSCO said in the report.
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