The war in Ukraine, galloping inflation or the biggest rate hike by the ECB in 22 years are enough reasons for this 2022 to go down in history. But there is more and a very specific one that fully affects the market where companies from the Old Continent are financed.
Corporate bonds have not wanted to stay out of record records and their contribution is that this year is already the third worst in history for them.
They have achieved it only with what happened until the beginning of July, so they have almost six months left to overcome the other two years that are above them for now. The first is 2008, when the subprime mortgage crisis erupted and Lehman Brothers was shattered, and the second is 2011, when the global financial storm turned into that of the euro.
The data is from Bank of America and says that in 2022 there have been 19 days in which European corporate debt spreads have moved five basis points or more, a very rare amplitude to see and that only occurs in times of intense stress. In 2008 and 2011 there were 25.
And that only in the best quality credit (the one with the investment grade) and taking the average between all the rating levels, because the companies that are in the lowest zone of that territory (BBB) have fluctuated much more and High yield risk premiums have skyrocketed directly.
June is a good example of this. European investment grade corporate credit spreads have climbed 52 basis points (the sixth worst month in history), those in the BBB area have risen 62 basis points, those in the B field have gone to 212 basis points and CCCs have been widened by 300 basis points. All this means more cost of issuance and higher cost of corporate financing. And it’s a direct result of the ECB’s withdrawal from the playing field after a decade of extraordinary aid, notes Bank of America.
The central bank’s crutch has skyrocketed the size of the credit market in Europe and has led companies to diversify their funding sources beyond banks. But now comes revenge. “Today, the market has become too big for a world without buyers,” says the US entity.
In recent years, the euro corporate bond market has grown more than any other in relation to GDP. Neither the United States nor the United Kingdom can overshadow the European takeoff. At the end of 2009 there were less than 400 issuers of non-financial debt, with 650,000 million euros on the floor. Now the figure is close to two billion, sold by about 800 entities.
It was the answer to a highly banked world, with the need to seek alternative ways of financing in the face of the risk of the financial system. The problem is that it has to continue operating with that size without the ECB as the main buyer. “The rapid growth of the credit market was not a complication while the generosity of the ECB proliferated. But its exit has left the bonds without a clear buyer of the first instance. This means a scenario of too much debt and too little demand”, summarizes Bank of America.
The immediate consequence is an increase in the cost of financing for the best quality European companies and the virtual disappearance of the possibility of issuing for those that do not have such good solvency. The effort to avoid cost overruns or the inability to find buyers have made 2022 add 27 days of zero emissions in the euro zone until July 25, when the data for August has not even been counted, according to data from Bloomberg. Last year as a whole there were 23.
