Bond issuance bursts through $1,000bn
18 August 2009, by David Oakley and Ed Hammond (The Financial Times)
http://www.ft.com/cms/s/0/a2c3ae5c-8c27-11de-b14f-00144feabdc0.html?ftcamp=rssGlobal corporate bond issuance has risen above the $1,000bn mark the first time it has broken through this threshold in a single year with four months remaining of 2009.
The boom is because of the difficulty companies face in obtaining bank loans and strong demand from investors, who can gain a big yield pick-up on corporate paper compared with government bonds.
Investors have switched more of their cash into corporate bonds because they offer better returns than the low interest rates on bank deposits and savings accounts.
Corporate bond issuance has risen to $1,103bn so far this year, beating the annual record of $898bn in 2007, according to Dealogic, the data provider.
The jump in issuance has been seen in dollar, euro, yen and sterling-denominated deals.
Volumes in dollar, euro and sterling have risen to record annual highs, only eight months into the year, while volumes in yen are close to record levels.
Dollar issuance has risen to $487bn, euro issuance to $299bn, yen issuance to $64bn and sterling issuance to $53bn.
In contrast, volumes of syndicated bank loans this year are 52 per cent down on 2008 and 69 per cent down on 2007, as banks are more reluctant to lend as they repair their balance sheets.
So far this year, syndicated bank lending has risen to $1,052bn compared with $2,182bn over the same period in 2008 and $3,369bn over the same period in 2007.
Richard Batty, investment director at Standard Life Investments, said: Corporate bonds are the number one asset choice. We are very overweight in corporate bonds.
This is because the spread of corporate bond yields over government bond yields more than compensates for any company default risk.
However, investors are much more choosy over the bonds they buy than they were before the credit crisis, parking most of their money in the big, established investment grade companies in sectors such as utilities and oil and gas.
Of the $1,103bn raised this year, $989bn, or 90 per cent, has been in investment-grade bonds, with 30 per cent issued by companies in the utilities and oil and gas sectors.
Bond issuance bursts through $1,000bn: Global corporate- bond issuance has surged risen above the $1,000bn mark ..
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