After $645 Billion Binge, Europe’s Bond Sales Are Set to Slacken

A bonanza of European debt sales so far this year may be as good as it gets for the market as recovery from the pandemic starts to put the brakes on issuance.

Companies and countries have sold about 550 billion euros ($645 billion) of bonds so far in 2021, according to data compiled by Bloomberg. That’s 6.5% more than in the first quarter last year, when borrowers started raising funds at an unprecedented pace to tide them through the coronavirus crisis.

A flurry of sales hit the market in the early part of 2021 as many issuers, wary of the potential impact of rising inflation pressures, sought to lock in still-cheap funding costs. Yet that dynamic may fade as cash-rich companies switch out of survival mode and government treasuries and agencies get big chunks of their financing programs out of the way.

“Looking at progress so far and at what we have seen in the previous years, I would say in the second half we will see the supply ease off a little,” said Michiel de Bruin, a Rotterdam-based portfolio manager for global macro fixed income at Robeco, which oversees 176 billion euros. “Some issuers have already done quite a large part of their total issuance this year.”

After $645 Billion Binge, Europe’s Bond Sales Are Set to Slacken

As well as fears about resurgent inflation, assurances from the European Central Bank that stimulus will remain in place to keep borrowing costs down have helped to sustain the pace of issuance.

Forging Ahead

Public sector issuers including Italy and the European Union have pressed ahead with borrowing to fund the recovery of their economies from long-lasting lockdowns.

By mid-March, the European Investment Bank had funded almost half of its 60 billion-euro borrowing plan for 2021. Germany’s development bank KfW has already raised about 42% of its 70-80 billion-euro funding target, according to a spokeswoman.

“As an issuer you can’t expect the rates environment to be this low forever,” said Helene Jolly, head of EMEA investment-grade corporate syndicate at Deutsche Bank AG in London.

Some borrowers are showing signs of indigestion after the market absorbed a record 1.7 trillion euros of issuance in 2020.

Sales from companies and banks has slackened to account for less than half of the overall tally, compared with 54% for the first quarter last year, data compiled by Bloomberg show.

“There are some sectors where issuers are feeling they are probably even over-funded,” said Colm Rainey, Citigroup Inc.’s managing director for U.K. debt capital markets.

Surging Demand

Still, the dynamic ethical bonds market could support sales across different sectors, as issuers meet surging demand from investors for securities tagged to goals deemed to do good to society and the environment.

Sales linked to green, environmental, social or governance goals account for 24.2% of the year’s total sales, the highest tally on record. Another driver of activity could be a surge in mergers and acquisitions.

Fresh bouts of the pandemic that slow economic recovery and force companies to worry again about burning through cash piles would also spur issuance, said Luke Hickmore, an investment director at Aberdeen Standard Investments.

“The amount of liquidity raised last year was staggering - there is less demand now and certainly less need for companies to raise even more,” he said. “I suppose the only thing that changes that is if the pandemic impacts economic growth for longer.”

©2021 Bloomberg L.P.

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