Euro Debt Sales See Early Start

Euro and sterling bond sales have had the quickest start to the year on record as governments and financial institutions take advantage of falling borrowing costs. Borrowers have raised 170 billion euros ($184 billion) in the first two weeks of 2023, which is the highest amount sold over this period on record dating back to 2000. The decline in gas prices, hopes that inflation is peaking, and the possibility of a milder recession have improved sentiment.

Borrowing costs, which hit their biggest jumps on record in 2022, have dropped significantly in January. Germany’s 10-year bond yield has dropped by almost 40 basis points, showing the biggest monthly drop since July. Euro investment-grade corporate bond yields are down 30 bps, and the cost of insuring sub-investment grade debt exposure has reached the lowest level since April.

The record is driven by a sharp increase in debt sales from financial institutions. Large debt sales from lenders such as Santander and Societe Generale drove the issuance of 52 billion euros in the first two weeks of the year, doubling from 2022. Analysts noted that as banks sell debt more frequently to fund their balance sheets, they have more of an incentive to take advantage of falling yields.

Issuance from companies decreased 33% to 20 billion euros, according to recent data. Companies, which raise debt less frequently, may be deterred by higher market borrowing costs relative to what they pay on their outstanding debt, according to analysts. Governments and other public sector borrowers raised 69 billion euros from syndicated debt sold directly to end investors, just shy of 2020’s record, the data shows.

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