Dutch corporate bond market grows to over EUR 100 billion

Statistical News Release
Date 6 August 2013

The Dutch corporate bond market has doubled in size since 2007. Non-financial corporations' recourse to the bond market has grown particularly sharply from 2009 onwards. In the first quarter of 2013, the market increased to a record level of EUR 105 billion. One explanation for the boom is the declining interest rates on bonds, both in absolute terms and relative to interest rates on bank loans.

Figure 1 shows the trend of the market for Dutch long-term corporate bonds. Before the financial crisis broke out, the market was relatively stable and fairly small (EUR 51 billion at year-end 2006). During the financial crisis, the amount outstanding in corporate bonds peaked temporarily at EUR 95 billion in the first half of 2010, falling off slightly thereafter. From 2012, the amount outstanding in corporate bonds shot up sharply again, peaking at EUR 105 billion in the first quarter of 2013.   

Figure 1 The Dutch corporate bond market (in EUR billion)

Source: new-issue market DNB, gross issues of long-term debt paper (nominal value)

The expansion of the long-term corporate bond market since the start of the financial crisis is also mirrored in the growing number of new issues (Figure 2). Especially in 2009, large companies placed many new bonds (EUR 31 billion). Having dipped by EUR 6 billion in 2011, the market picked up again in 2012 and the volume of new issues grew to EUR 16 billion. In the first half of this year, new issues stood at EUR 4.5 billion as compared with EUR 5.7 billion and EUR 3.9 billion in the first half of 2012 and 2011 respectively.    

Figure 2 Issues of corporate bonds (in EUR billion)

Figure 1 The Dutch corporate bond market (in EUR billion)

Source: new-issue market DNB, gross issues of long-term debt paper (nominal value)  

One of the explanations of the growing recourse to the bond market is that interest rates on bonds have been lower than those on bank loans since the start of 2009 (Figure 3). In addition, banks have tightened their lending conditions, which makes it more attractive for companies to finance themselves through capital markets instead of bank loans. Since the start of the financial crisis, the proportion of bonds in the corporate sector's debt capital has grown sharply.  Before the crisis, the proportion of outstanding corporate bonds relative to bank loans was 15%. Since the second half of 2009 this has climbed to over 20%.

Like their counterparts in Germany and the United States, bond yields in the Netherlands are still at historically low levels. In 2006, average five-year interest rates on Dutch government bonds came to 4.2%. Interest rates have been declining sharply since the last quarter of 2008, to below 0.5% in the closing quarter of 2012. Consequently, investors went in search of higher returns by investing in long-term corporate bonds. Due to the great demand for corporate bonds, most new issues were oversubscribed several times, which narrowed the gap with government bonds. The low level of interest rates enabled companies to refinance themselves at lower rates than several years ago. At the end of 2012, five-year interest rates on corporate bonds had fallen to 2.1%, from 6.2% in 2008.  Figure 2 shows that the decline in interest rates from the closing quarter of 2008 went hand in hand with an increase in the issue of corporate bonds.

A part of the newly issued corporate bonds in 2013 was attributable to replacements of old loans. The Dutch corporate sector for instance repaid over EUR 7.5 billion in total, of which EUR 2.9 billion was refinanced. In the second half of 2013 another EUR 7.2 billion should be redeemed, which increases the likelihood of more new issues of corporate bonds. It should be noted, however, that interest rates increased relatively sharply in the second quarter of 2013, which may have a negative effect on bond issuance activity.  

Figure 3 Five-year interest rates on corporate bonds and bank loans to non-financial corporations

Figure 2 Issues of corporate bonds (in EUR billion)

Figure 3 Five-year interest rates on corporate bonds and bank loans to non-financial corporations

Source: DNB interest statistics on MFI loans, and own calculations [note 1]

The number of companies taking recourse to the bond market is very small. In the first half of 2013 eight non-financial corporations took recourse to the capital markets, relative to ten in both 2012 and 2011. Table 1 shows the ten biggest issuers of corporate bonds on the basis of the outstanding debt for 2005 and 2012. The market shares of these companies added up to more than 50% in 2005 and 2012. In addition, the majority of the companies that had large amounts outstanding in 2005 have issued more bonds since the start of the financial crisis. This suggests that the capital market has become a structural source of funding for these companies. 

Table 1: Largest players in the Dutch corporate bond market

Issuer Year end 2005 IssuerYear end 2012
1.Royal KPN N.V.7,21.Royal KPN N.V.13,2
2.Unilever7,22.Royal Dutch Shell10,0
3.Royal Dutch Shell5,53.Heineken N.V.8,2
4.Royal Philips N.V.3,54.RWE5,0
5.AkzoNobel2,75.N.V. Gasunie4,5
6.VNU1,76.Unilever4,2
7.Wolters Kluwer1,47.Royal Philips N.V.4,2
8.Royal Ahold N.V.1,38.AkzoNobel3,4
9.Heineken N.V.1,39.NXP Semiconductors3,2
10.Essent NV1,210.Wolters Kluwer1,9
Market share of the 10 largest75%Market share of the 10 largest57%
Total size of corporate bond market44,2Total size of corporate bond market101,9

Sources: Annual reports and DNB securities issues market  

Within the euro area, non-financial corporations' recourse to the bond market also increased sharply.  The total volume of the corporate bond market had grown by 82% to EUR 945 billion at the end of May 2013, from EUR 522 billion at year-end 2006. 

Large Dutch corporations increasingly turn to the capital market to fund their activities rather than borrow from banks. Interest rates on corporate bonds are at historically low levels also relative to interest rates on bank loans. So we may say that corporate bonds are becoming an increasingly important funding source for the Dutch corporate sector. 

[note 1]Five-year interest rates on Dutch government bonds are based on one issuer only: Royal KPN N.V., the only issuer that had sufficient bonds outstanding between 2005 and 2013 to calculate a five-year interest rate by means of interpolation of yields on two bonds with a remaining maturity of close to five years. The derived yield nevertheless provides an adequate reflection of corporate bond yields in general.