The global bond markets started 2020 with $ 562.8 billion in issues during the month of January covering businesses, financials and sovereigns. This follows a record year for debt issuance in 2019 both globally and in the Middle East and North Africa (“MENA”).
A combination of calming global geopolitical tensions, with the rhetoric of the U.S.-China trade war ebbing and the outcome of the UK election have lifted uncertainty for investors, spurring demand for credit. Supply was also high, as companies are looking to issue before the blackout period that prevents them from raising debts, and sovereigns generally take their issues early in the year. The supply of credit in euros was particularly high, as issuers not based on the euro took advantage of the exchange rate by issuing in euros and exchanging currencies.
The euro debt market has been particularly active since the start of the year, with 31 billion euros in debt raised Wednesday 11e In January alone, the highest amount of high quality debt ever raised in a single day. Negative rates mean that holding cash costs investors money, so many deploy excess euros in fixed income securities.
The US prime credit market also benefited from $ 67 billion in the first week of trading, beating street-wide forecasts by $ 34 billion, up 40% from 2019 Investors have accumulated large cash balances in recent weeks and are well placed to put this money to work, stimulating market demand.
In the MENA region, issues on the market crossed the 100 billion US dollar mark for the first time last year. This year, we saw several issuers already on the market, January being a busy month for the region. We expect total emissions in 2020 to reach a figure similar to 2019, as sovereigns, banks and businesses in the region are tapping into the debt market for their financing needs.
In the past two years, two additional themes have emerged in the MENA debt capital markets.
The first is the use of “Formosa” bonds – registered on the Taiwanese stock exchange – in an issuer’s fundraising plans. By their local registration, these instruments can be invested by Taiwanese investors, thus opening up issuers in the MENA region to a wider pool of global capital.
Another theme is the growing demand from investors and issuers for financing and investments related to the environment, society and ESG governance. Demand is already strong because global investors, particularly in Europe, are interested in investment opportunities that meet certain ESG criteria. The ESG bond markets have grown since the first issue of green bonds from the European Investment Bank in 2007. In particular, the sovereign green bond segment is experiencing dynamic growth, with cumulative issues at 42 billion euros for European governments, including € 15.6 billion in 2018 and € 20.2 billion in 2019, an increase of 30% from one year to the next.
Globally, in 2019, Deutsche Bank helped its clients issue green bonds of around 20 billion euros – an amount twice and a half higher than the previous year and around 10% of the total volume of the market. The bank plans to issue its inaugural green bond later this year.
Issuers here in the MENA region are well advised to get their ESG certification in place for future bond issues, as this could lead them to a new set of investors and therefore have a positive impact on their future bond pricing. , not to mention their own credibility in terms of contribution to ESG principles.
* All opinions expressed in this article are those of the author
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinions regarding the relevance, value or profitability of a particular security, portfolio or investment strategy. Read our full disclaimer policy here.
© Opinion 2020