The start of a new year is normally a good time for corporate debt issues, although in the first few days of 2017 there have been a greater number of these than in previous years due to the ECB’s purchase programme. The costs of this recovery in the primary corporate debt market have been very favourable as a result of the low interest rate backdrop.
According to Bloomberg, in the first few days of January European companies and banks have issued almost 50 billion euros of debt, double the amount issued in the same period of 2016.
The key to this can be found in the ECB’s asset purchase programme. At end-2016, the outstanding balance of corporate bonds on the ECB’s books stood at 51 billion euros. According to Afi experts, this volume represents barely 3.3% of the total purchases made by the central bank. But its impact is very significant given the reduced size of the non-financial corporate debt market in the euro area.
This year is going to be one of uncertainty. No-one knows what will happen with global trade when Donald Trump is inaugurated as US President on January 20; and then there will be elections in France and Germany, which will determine the future of Europe. All these factors have driven many companies to speed up the process of obtaining funding in the capital markets, anticipating these periods of instability.
Another reason for betting on corporate debt issues is cost. Bond yields have fallen in the last few weeks, and experts believe that the start of 2017 could be the cheapest time to get financing in the markets.
In Spain, the banks have cornered more than half of the issues up to now. While Telefónica, for its part, has issued 1.750 billion euros in corporate bonds, the largest issue by a non-financial company so far in 2017.
Santander has announced its financing plan for the next two years, with the aim of adjusting this to meet the new requirements for loss-aborbency and capital.
The bank will issue up to 57 billion euros in debt between 2017 and 2018. Of this total amount, up to 32 billion euros will be placed this year (it issued 1.250 billion euros on Tuesday) and the remaining 25 billion in 2018.