Bond Sales Slump to 2002 Low in Europe as Banks Cut Debt Piles

December 22, 2013 Leave a comment

Bond Sales Slump to 2002 Low in Europe as Banks Cut Debt Piles

Bond sales dropped to the least since 2002 in Europe this year, with financial institutions curbing issuance as they cut debt to meet capital demands from regulators.Companies sold 785 billion euros ($1.1 trillion) of notes, 6 percent less than in 2012, according to data compiled by Bloomberg. Offerings from banks and insurers slumped 13 percent to 481 billion euros while high-yield note issuance by non-financial companies soared to a record 72 billion euros.

Banks, which retain access to cheap funds from the European Central Bank’s longer-term refinancing operations, are trimming their businesses to meet new Basel III capital rules. Companies that did sell bonds have been able to make the most of borrowing costs that reached an all-time low of 1.7 percent.

“Banks are shrinking their balance sheets to meet leverage capital targets and as they’re not lending so much they don’t need to issue as many bonds,” said Roger Francis, a credit analyst at Mizuho International Plc in London. “For the rest of the market, rates are very low and if companies don’t borrow this year they might regret it in 2014.”

The cost of insuring corporate bonds against losses fell the most since 2009 this year. The Markit iTraxx Europe Index of 125 investment-grade borrowers dropped 38 percent to 72.3 basis points, approaching the lowest in four years.

The Markit iTraxx Crossover Index of 50 companies with mostly speculative-grade ratings fell 41 percent during the year to 291 basis points, the lowest since October 2007.

To contact the reporter on this story: Katie Linsell in Madrid at klinsell@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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