Dutch long-term corporate debt issuance tops EUR 10 billion again

Statistical News Release
Date 22 October 2012

In 2012 to date, long-term bond issues by Dutch non-financial corporations have strongly increased. During the first three quarters of 2012, corporations issued bonds for amounts of, respectively, EUR 4.0 billion, EUR 1.3 billion and EUR 5.6 billion (total: EUR 10.9 billion). In March and August, especially, many corporations placed new loans in the capital market. Except during the 2008Q4–2009Q3 period, when average quarterly bond issuance came out at EUR 8.6 billion, gross quarterly issuance has never been as high as during the third quarter of 2012. The month October so far has already seen issues worth EUR 2.5 billion of long-term corporate bonds. Long-term bond issuance by non-financial corporations will also top the year 2010, when such issues reached EUR 13.1 billion.

On a global scale, the capital market for corporate bonds has also been growing for several months (Chart 1). In the euro area, issuance volumes have also been rising. Over the first eight months of the current year, gross euro area issuance comes out at EUR 103.9 billion, close to the total issuance of 2011 (EUR 107.1 billion), partly on account of rising issues by southern European corporations. In the USA, investment in long-term corporate bonds during the first three quarters of 2012 came out at USD 984.4 billion, compared with USD 1012.1 for entire 2011. As a result, total new issuance in the USA will come close to the standing record of USD 1127.5 billion, established in 2007. Dutch corporations, too, opt more often for dollar-denominated loans, the so-called Yankee bonds. Between 2000 and 2011, an average 34.0% of long-term bonds issued by Dutch non-financial corporations was denominated in a foreign currency, of which 73.2% in US dollars. In 2012 to date, 41.6% of long-term corporate bonds was issued in a foreign currency, of which 82.5% in US dollars. Put differently, where dollar-denominated issuance of corporate long-term bonds averaged 24.8% before, the current figure is 34.2%.

Chart 1 Corporate bond issues

The briskness of the market has several causes. Corporations increasingly turn to the capital market to fund their activities rather than borrowing from the banks. At the same time, interest rates on, for instance, Dutch and US government paper are historically low, and in some cases even negative. As a result, investors may potentially expect higher returns by investing in long-term corporate bonds. Most issues are therefore many times oversubscribed, despite the fact that the spread between corporate and government bonds has for some years been below 2.0% (Chart 2). Given the current market rates, non-financial corporations have been persuaded to seek refinancing at more friendly terms. Thus the high rate of new issues has been mirrored by high redemptions. Since most redemptions usually take place in the first quarter of any year, the net issuance picture emerging for 2012 may already be fairly accurate. Currently, net issuance in 2012 stands at over one billion euros, against EUR 200 million and EUR 500 million, respectively, in 2010 and 2011.

Chart 2 Interest rates on corporate and government bonds