Issuance of corporate bonds in the EU remained strong in the first half of 2017, according to the latest Trends, Risks and Vulnerabilities report from the European Securities and Markets Authority (ESMA).
The regulator’s figures show that the total value of corporate issuance in that period hit €571bn, compared to €532bn for the first half of last year.
In ESMA’s assessment, the rise was driven “almost entirely by a 26% increase in high-yield bond issuance, to €101bn”.
Turning to specific sectors, ESMA revealed that the volume of debt issued by utilities and energy companies underwent the steepest surge (+54% to €47bn).
At the same time, issues from industrial and services companies rose 23% to €173bn, signalling “robust economic activity in the non-financial sector”.
Hybrid capital issuance in H1 2017 totalled €50bn – on a par with performance in the equivalent time frame of 2016.
However, the credit quality of outstanding corporate bonds continued to decline, with the share of double-A or higher-rated bonds standing at 22% in Q2: a slip from 26% at the same point of last year.
Compounding that deterioration, the share of triple-B-rated bonds during Q2 rose from 22% to 25%.
ESMA points out: “Yields in corporate bond markets were mixed, with increases in triple- to single-A rated bonds ranging from 3 to 18 basis points [bps].”
In parallel, tighter credit-risk premia on BBB-rated bonds – where yields were down 6bps – suggest that “search-for-yield behaviour may continue to prevail in certain segments of the market”.
ESMA notes that a recent asset purchasing spree undertaken by the European Central Bank – which by June this year stood at €92bn, or around 5% of outstanding EU corporate bonds – has continued to shore up bond valuations.
In contrast to sovereign bonds, corporate bond market liquidity in the Euro Area improved in H1, as reflected in narrower bid-ask spreads (below 0.4% in June 2017, compared to 0.5% at the end of 2016) and a low Amihud coefficient.
The report added that issuance of securitised products in Q1 2017 remained subdued, with €16bn issued – broadly on a par with Q1 2016, despite a partial recovery during H2 of that year. The share of issuance placed remained high relative to previous years, at around 44%.
Meanwhile, covered bond issuance in the first half of the year was equally subdued, with €128bn issued in total: down from €168bn in H1 2016.
“After rising at the end of last year,” ESMA writes, “covered bond spreads declined slightly in H1 across rating categories”, particularly among BBB-rated securities.