Bond sales dropped to the least since 2002 in Europe this year, with financial institutions curbing issuance as they cut debt to meet capital demands from regulators.
Companies sold 785 billion euros ($1.1 trillion) of notes, 6 percent less than in 2012, according to data compiled by Bloomberg. Offerings from banks and insurers slumped 13 percent to 481 billion euros while high-yield note issuance by non-financial companies soared to a record 72 billion euros.
Banks, which retain access to cheap funds from the European Central Bank’s longer-term refinancing operations, are trimming their businesses to meet new Basel III capital rules. Companies that did sell bonds have been able to make the most of borrowing costs that reached an all-time low of 1.7 percent.
“Banks are shrinking their balance sheets to meet leverage capital targets and as they’re not lending so much they don’t need to issue as many bonds,” said Roger Francis, a credit analyst at Mizuho International Plc in London. “For the rest of the market, rates are very low and if companies don’t borrow this year they might regret it in 2014.”
The cost of insuring corporate bonds against losses fell the most since 2009 this year. The Markit iTraxx Europe Index of 125 investment-grade borrowers dropped 38 percent to 72.3 basis points, approaching the lowest in four years.
The Markit iTraxx Crossover Index of 50 companies with mostly speculative-grade ratings fell 41 percent during the year to 291 basis points, the lowest since October 2007.
To contact the reporter on this story: Katie Linsell in Madrid at firstname.lastname@example.org