Record-breaking Month for European Bond Sales: €240 Billion Raised in an Unprecedented January
January 2023 marked a significant period for European bond sales, with record-breaking figures surpassing the previous January high set in 2020. According to data compiled by Bloomberg, European bond sales reached an unprecedented EUR240 billion ($260 billion) in January, marking a notable increase in activity in the bond market.
This surge in bond sales can be attributed to a combination of factors. Banks have been particularly active, rushing to fill a financing void as they prepare to repay more of the pandemic-era low-cost funds provided by the European Central Bank. The rally is increasing business bond returns and driving down funding prices.
Moreover, issuers have become more mindful of opportunities and are rushing to issue rather than waiting. This proactive approach is evident in the record-breaking digital bond issued by the European Investment Bank (EIB) in pound sterling, using both private and public blockchains via HSBC’s Orion platform. This issuance reflects the growing adoption of distributed ledger technology (DLT) in European capital markets, allowing for more efficient, transparent, and potentially lower-cost bond issuance and trading.
Despite a disappointing 2022 for international credit markets due to central banks' initiatives to combat surging inflation, the European bond market has shown resilience. Offerings from the UK and European Union on Tuesday have pushed marketwide sales this month to a minimum of EUR244 billion. For instance, a EUR5 billion offering from the European Union has gathered almost EUR52 billion of orders, while a UK gilt sale of £6 billion ($7.38 billion) has gathered over £65 billion of orders.
David Zahn, head of European fixed income at Franklin Templeton, states that issuers are overweight on European credit. Consumers are heavily investing in public debt markets during a start-of-year global credit rally. The European Central Bank (ECB) is expected to play a significant role in how its plan rate goes, making bonds more expensive to market, especially in the shorter end.
The implications for issuers are varied. Access to capital is more accessible, with innovations like digital bonds potentially lowering issuance costs and expanding the investor base. Timing and terms are crucial, with anticipation of rising rates motivating issuers to tap markets early to secure lower borrowing costs. Liquidity and efficiency are also enhanced, as digitalization can make bonds more attractive to both issuers and investors.
For investors, the landscape is equally dynamic. Diversification remains important, with digital and traditional bonds continuing to offer portfolio diversification, albeit with different risk-return profiles. The search for yield in a low-rate environment may lead investors to chase yield in higher-risk segments or innovative products. Market resilience, as seen in broader periods, requires careful credit analysis, especially as spreads fluctuate. Adoption of DLT introduces new operational risks alongside potential efficiencies.
In conclusion, while January 2023 did not set a record for European bond sales in absolute terms, it was notable for early digital bond issuance by the EIB, signalling a shift toward technological modernization in European capital markets. Broader factors like monetary policy expectations, credit market technicals, and the search for yield have historically driven bond issuance volumes. For issuers, these trends mean opportunities to access capital more efficiently, while investors face both new prospects and evolving risks in a rapidly changing fixed income landscape.
Banks' increased activity in financing, driven by the impending repayment of pandemic-era funds and the European Central Bank, has led to a rally in business bond returns. This surge in bond sales and adoption of distributed ledger technology (DLT) by issuers, such as the European Investment Bank, signals a shift in the business and finance landscape.
