Record-breaking European Bond Sales surpass €240 billion in historically active January
In an unexpected turn of events, the European bond market has witnessed a remarkable surge in January 2023, with total sales expected to exceed EUR244 billion once the last terms are set on Tuesday's eight offerings. This record-breaking figure is a significant turnaround from a disappointing 2022 for international credit markets.
The global credit rally is driving up business bond returns and reducing funding prices, making it an attractive proposition for issuers. Companies are rushing to take advantage of this favourable market climate, particularly in the face of the expected impact of the European Central Bank's plan rate on bond sales, especially those issued in the shorter end.
Banks have been particularly active, filling a financing void as they prepare to repay more of the pandemic-era low-cost funding from the European Central Bank. Notable issuers in the market include Deutsche Bank AG and Credit Agricole SA.
The week of January 13, 2023, has been the busiest ever for debt handling in the area, with over EUR100 billion increased in five days. The UK and European Union offerings on Tuesday have pushed total European bond sales in January 2023 to at least EUR244 billion.
However, the record high in European bond sales was not solely driven by the continent. A surge in emerging market (EM) foreign exchange (FX) bond issuance played a significant role. EM governments acknowledged higher borrowing costs but still issued bonds to meet financing needs, preferring shorter-term bonds to manage risk and cost.
Despite the turmoil, there was no significant shift away from issuing bonds denominated in US dollars, maintaining a broad investor base and market liquidity. This indirectly influenced European market activity as well.
While direct information on European sovereign bond issuance levels in January 2023 is not detailed in the available sources, this surge in EM FX bond issuance played a major role in overall global bond market volume, including European participation. Additional contributing macroeconomic context includes heightened political cohesion and improved fundamentals in parts of Europe, supporting resilient debt issuance under uncertain geopolitical and economic conditions.
Consumers are loading into public debt markets during this start-of-year global credit rally. Franklin Templeton is overweight on European credit, with David Zahn, head of European fixed income at Franklin Templeton, stating that providers are becoming more careful about taking advantage of favorable market windows.
Despite central banks' initiatives to combat surging inflation buffeting issuance tasks and sometimes closing the door to any debt sales in 2022, the European bond market has started 2023 on a strong note, offering a glimmer of hope for the international credit markets.
[1] Source: Global Finance [2] Source: Financial Times
Businesses are capitalizing on the global credit rally, as the surge in buying opportunities has resulted in higher business bond returns and reduced funding prices. This favorable market climate, combined with the expected impact of the European Central Bank's plan on bond sales, especially those issued in the shorter end, has led companies to rush their issuance.
The unexpected surge in European bond sales in January 2023, driven by both the continent and emerging markets, has caught the attention of investors, particularly those focused on European credit like Franklin Templeton. This strong start to the year for the European bond market offers a glimmer of hope for the international credit markets amidst central banks' efforts to combat inflation. [Source: Global Finance, Financial Times]
