By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)- The International Organisation of Securities Commissions (IOSCO) Tuesday put the corporate bond market at $3.2 trillion in 2013 compared to $0.9 trillion in 2000.
This is contained in a published staff working paper of the global securities commission entitled ‘’ Corporate Bond Market: A Global Perspective’’.
IOSCO says that corporate bond markets are growing in terms of size and importance to the real economy, and are extending their global nature.
According to the global securities commission in its research, in the last 13 years, 27 new economies have recorded corporate bond issuances, most of these emerging markets.
The IOSCO research says that emerging markets accounted for 30 percent (30%) of recorded issuance volume in 2013 compared to about 5% in 2000. ‘’Interestingly, a growing number of emerging market issuances are ‘puttable’ (the bondholder can ask to reclaim their principal before the maturity date),’’ the research said.
IOSCO affirmed that in 2013, issuances of bonds with a put option in emerging markets reached $47 billion, compared to issuance of $1 billion in developed markets. ‘’If this upward trend continues, it could signal increasing volatility in financing of emerging market firms,’’ the global securities commission said.
The report says bond issuances offered on international markets have increased, with $1.8 trillion issued from developed markets and $320 billion in emerging markets in 2013. ‘’Specialized local issuances are also breaking into the global market e.g. Sukuk (Islamic) issuances. Sukuk issuances in emerging markets reached $24 billion in 2013. In developed markets, issuance in 2013 reached $472 million in 2013, double 2007 levels,’’ the report said.
The IOSCO research further affirmed that corporate bond markets have almost tripled in size since 2000. While financial firms in developed markets are deleveraging, non-financial firms are tapping the corporate bond markets in growing numbers. ‘’Bank lending to non-financials is weak in the US and Europe, suggesting a move away from bank lending towards corporate bond financing in some developed markets,’’ IOSCO noted.
The report says long-term infrastructure projects and real estate property developers are also raising financing on corporate bond markets. ‘’For example, between 2000 and 2013, $171 billion worth of infrastructure bonds were issued, the majority issued post-2007,’’ IOSCO said.
‘’Meanwhile, a search for yield is driving investment in high yielding corporate bond markets: High yield issuances have increased from $72 billion in 2000 to $550 billion in 2013. Issuance of Payment-in-Kind bonds reached $18 billion in 2013, higher than pre-crisis levels. Contingent Capital bonds (e.g. CoCos and write-down bonds) reached $15 billion in 2013,’’ IOSCO said.
The report also identifies trends in financial compared to non-financial firm issuance; local and non-local currency issuance; issuances for refinancing purposes; and term length. ‘’These bonds are examined in the context of interest rate risk, default risk, call risk, rollover risk, foreign exchange risk and liquidity risk, with a focus also on retail investors,’’ IOSCO affirmed.
However, Greg Medcraft, chair of the IOSCO board, commenting on the report said it’s a good example of IOSCO being proactive and ahead of the curve in its research efforts. ‘’Corporate bond market development globally is important for long-term investment and economic growth,’’ Medcraft said.
