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Though the European Central Bank’s Asset Purchase Programme has halved, EMEA euro-denominated bonds remained steady year-on-year.

Monetary policy bolsters EMEA volume

On October 26 last year, the European Central Bank (ECB) announced it would halve its Asset Purchase Programme (APP) to €30.0bn per month starting in January 2018. Since it was announced in March 2015, the APP’s average monthly pace has shifted between €60.0bn and €80.0bn (until the end of 2017).

As a result of the financial stimulus and the 0% interest rate in the euro area, EMEA DCM volume reached the highest volume since 2009, totaling €1.06tr in 2017. Average deal size reached €470m, the highest on record. All sectors benefited from the monetary policy in 2017, with corporate volume up by 14% year-on-year; sovereign, supranational & agencies (SSA) up 13%; and financial institutions group (FIG) up 2%.

Corporates capitalized on ECB and yield-hunting investors

As part of the APP, ECB started its Corporate Sector Purchase Programme (CSPP) in June 2016. It held around €131.6bn in corporate bonds as of December 31, 2017, investing approximately €7bn per month into the market. With this significant new buyer of euro-denominated investment-grade debt, EMEA corporate volume reached a record high of €297.8bn in 2017, up
14% from €261.8bn raised in 2016. Last year’s increase is more conspicuous compared to 2015 (€230.4bn), when the CSPP was non-existent.

Attracted by low rates and the CSPP, corporate investment-grade issuers raised €236.9bn in 2017, the highest volume on record. At the same time, high-yield names could also find creditors looking for higher returns. Corporate euro-denominated high-yield volume reached €60.9bn in 2017, up 54% from €39.5bn in 2016—also the highest annual volume on record.

Healthy demand and supply start 2018

Despite fears of ECB tapering and rate hikes from the US Federal Reserve, euro-denominated bond issuance in EMEA reached €85.1bn in the first two weeks of 2018, on par with €85.8bn raised in the same 2017 period. Sovereign issuers kicked off the year with jumbo deals: Italy priced a €9.0bn 30-year transaction, while the Republic of Ireland and Portugal both raised €4.0bn with 10-year tenors. Among corporates, Anheuser-Busch InBev and BMW also found demand for multibillion euro deals in 2018, issuing €4.25bn and €2.0bn, respectively.

-Written by Tamás Varga, Dealogic Research

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Data source: Dealogic, as of January 12, 2018