Benjamin Purvis, in his recent article published at bloomberg.com on June 18 2014, informs about the increasing issuance of securities across the globe, specifically corporate bonds. He hints the trends of corporate funding for the next 5 years and explains how companies from big markets like Asia, Europe, and the Americas have started issuing various securities on flexible terms.
Non-financial companies around the world are on the brink to raise $6.6 trillion or more from new bonds and other debt securities in the five years through 2018 as they increase reliance on capital markets, said Standard & Poor’s.
Debt markets are offering more pleasing policies for borrowers as investors’ hunt for higher-yielding securities urges demand for corporate paper and bank loans are controlled, S&P said today in a report. The ratings company predicted that the bond sales would form part of a total new funding requirement of as much as $21.7 trillion through 2018 for corporate borrowers in Asia, Europe and the Americas.
The search for higher returns has been determined by a global collapse in yields as the world’s major central banks hold standards near zero and apply unprecedented financial easing. Demand for credit has compacted spreads and the typical yield premium over swap rates for corporate bonds this month fell to 97 basis points, the least since December 2007, according to a Bank of America Merrill Lynch index.
“For the U.S., though we envision commercial banks to make a comeback, we project the share of debt securities to continue to rise,” S&P said. “Given a growing demand for yield alternatives, robust debt issuance will likely continue, supported by attractive interest rates as well as an expanding investor base willing to extend corporate issuers with lucrative credit and maturity terms.”
U.S. non-financial corporates are predictable to issue about $2.5 trillion of bonds, while the European corresponding will be about $1.5 trillion, S&P said. Chinese companies will sell $1.3 trillion worth of notes and the rest of the Asia-Pacific region about $900 billion. The combined number for Brazil and Mexico is forecast to be in the region of $200 billion.
“You’re getting more and more different issuers who may have previously accessed funding through bank channels that are now doing more of it through capital markets,” Ashley Perrott, the Singapore-based head of pan-Asia fixed income at UBS Global Asset Management, said in a phone interview today. This process is particularly notable in emerging markets, he said.
Bond issuance by companies other than financial services providers was $1.69 trillion globally last year, more than double the $758 billion of notes sold in 2008, according to data compiled by Bloomberg. They have sold $856 billion of bonds so far in 2014, with JPMorgan Chase & Co. and Bank of America Corp. the leading underwriters.
Total demand for debt including new and refinanced loans and bonds is expected to be as much as $60 trillion over the five-year period, according to S&P.
In the U.S., overall borrowing for the period is projected by S&P to be as much as $14 trillion. Just under a third of that will be new financing, the bulk of which will be used to fund capital spending and an increase in acquisitions, its analysts wrote.
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