Despite government bond issuance being high on historical levels, there is little evidence that this is crowding out productive investment through corporate bond markets, which have also been increasing strongly in terms of issuance.
While a search for yield is driving investment in corporate bond markets, a changing interest rate environment creates winners and losers.
Accommodative monetary policies orchestrated by central banks in developed economies have driven down interest rates and fuelled a search for yield, with higher yielding corporate bond products becoming increasingly popular.
For instance, global corporate bond markets have almost tripled in size since 2000, reaching $49 trillion in 2013, said the International Organisation of Securities Commissions (IOSCO) in its recent report titled “corporate bond markets: a global perspective.”
In 2013, corporate bond issuance, a measure of market activity, reached $3.2 trillion, compared with just $0.9 trillion in 2000.
Twenty-seven new economies have recorded corporate bond issuances in the last 13 years, most of these economies are emerging markets. In 2013, emerging markets made up 30 percent of global issuances compared with just 5 percent in 2000.
In the report available to INVESTOR, IOSCO believes that deepening markets can suggest increasing reliance on corporate bond markets to meet the financing needs of an economy, adding that “since the onset of the crisis in particular, corporate bond markets have begun to fill an emerging gap in bank lending and long-term financing and are showing potential for servicing SME financing needs.”
The report also shows that bond issuances offered on international markets have increased, with $1.8 trillion issued from developed markets and $320 billion in emerging markets in 2013.
Specialised local issuances are also breaking into the global market – example, Sukuk (Islamic) issuances. Sukuk issuances in emerging markets reached $24 billion in 2013. In developed markets, issuance in 2013 reached $472 million, double 2007 levels.
“Market depth (amount outstanding as a percentage of GDP) has been increasing among developed and emerging markets, averaging 169 percent for developed markets and 24 percent for emerging markets in 2013,” it added.
