Banks exempted themselves from this year’s booming market for European bond sales, raising the lowest amount ever in euros from debt investors in favor of cheap loans from the European Central Bank.
Financial institutions issued 120 billion euros ($156 billion) of senior unsecured bonds this year, down from 122 billion euros in 2011 and on track for the least since the euro began, Societe Generale SA data show. That compares with the 81 percent jump to 237 billion euros raised by non-financial companies this year, making it the busiest since the record set in 2009, according to data compiled by Bloomberg.
Banks sold less debt as they borrowed 1 trillion euros at below market rates through the ECB’s three-year longer-term refinancing operations in late 2011 and early this year to avert a credit crunch. Issuance may slow further as new capital rules push European banks to cut debt by as much as $3.8 trillion through 2013, according to International Monetary Fund estimates.
“The lower levels of supply seen this year are the result of the use of the LTRO, the deleveraging within the banking industry and the reduced demand for credit,” said Suki Mann, a strategist at SocGen in London. “The LTRO mainly helped in terms of alleviating refinancing issues. Banks have a reduced need to access the capital markets.”
Banks’ net issuance of senior bonds fell this year as they redeemed 320 billion euros of securities, according to SocGen. Lenders may raise about 140 billion euros from senior bonds in 2013, less than the 220 billion euros of expected redemptions.
Sales of covered bonds, notes secured on loans and guaranteed by the issuer, dropped this year to 109 billion euros, the least since 2008, SocGen data show. Issuance of the debt may slump to 85 billion euros next year, short of the 145 billion euros that banks are expected to redeem.
European bank bond yields dropped to a record-low 1.7 percent on average from 4 percent at the start of the year, according to Bank of America Merrill Lynch’s Euro Senior Banking Index.
UniCredit SpA, Italy’s biggest bank, raising 17.6 billion euros and Rabobank International 17.1 billion euros, were among the biggest issuers of securities among European banks, Bloomberg data shows.
The cost of insuring financial debt is heading for the biggest-ever annual decline and trading near the lowest levels since May 2011. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was unchanged today at 152 basis points after falling from 279 basis points Dec. 30, 2011. The subordinated index fell one basis point today to 258 and is down from 512 at the start of the year.
Non-financial companies raised the most from bond sales this year since a record 312 billion euros was issued in 2009, according to data compiled by Bloomberg.