Debt issuers lift their foot off the accelerator. After four particularly intense weeks, the capital market is now preparing to put on the brakes. The first month of the year is characterized by a large volume of activity, where states and companies go out in search of investors to cover up to 40% of their annual financing needs.
The cost of financing has risen exponentially at an unprecedented speed during 2022, in line with the rise in interest rates from the European Central Bank (ECB). The possibility that the central banks continue with the reference rates has caused a ‘call effect’ to go to the market, a trend that began to gain strength at the end of last year, with a change of tone among investors in the heat of a moderation in the growth of inflation rates.
Thus, after a more active January than usual and the traditional slowdown that occurs due to the earnings season (companies must respect the ‘lock-up’ period), Société Générale warns that investor appetite once After the emission quarantine, it will be subject to the evolution of the global economic context, marked by the war in Ukraine, the energy crisis and inflation.
Fernando García, director of capital markets of the aforementioned firm, assures that although a volume higher than that recorded in 2022 is expected, especially in the area of corporate debt, the movements “will not be high”, since the Companies have a “sufficient” level of liquidity to avoid coupon price volatility.
To date, banks have taken center stage, at least in the euro zone, where financing programs have mobilized a total of 100,000 million so far this year, of which more than 13% have been registered in Spain . At the national level, the excess demand has led entities such as CaixaBank to debut abroad with its first program in dollars worth 1,250 million, plus another 500 million in pounds. It thus joins Banco Santander, which adds 500 million in British currency and 3,500 million in ‘green notes’.
The need to refinance its long-term operations (TLTRO) and the withdrawal on the scene of the European Central Bank (ECB) in the purchase of debt have forced banks to accelerate the pace, after placements have shot up 37% in the last twelve months compared to 2021, up to 26,800 million, which makes it the only segment of the three analyzed (public, financial and corporate debt) that experienced an increase during 2022.
The public sector has also become more attractive to investors given the recovery of profitability to levels not seen in eight years. With the demand for the latest auctions, in the case of the Public Treasury, they are proof of the “powerful” interest that they arouse among investors, at least in the short term and in a volatile environment such as the current one. It makes it reduce after its volume by 17% last year, to 34,125 million through twelve syndicated operations, of the seven that had the ESG seal.
In this sense, García has highlighted the fall in debt issues classified as ‘green’ in 2022, with a decline of between 18% and 20%, dragged down by the lower offer. Despite this, he assures that sustainable bonds continue on their path of consolidation and “in a not too distant time they will be normal”.
However, the biggest loser from the increase in financing costs has been the corporate debt market. The companies have chosen to pull the ‘cushion’ of accumulated liquidity and park the option of going to the market. Specifically, the volume of this type of bond has shown a decrease of 63% and remains below 8,000 million. Of this amount, the bulk (5,000 million) was captured during the first part of 2022, when Christine Lagarde had not yet pulled the trigger on the restrictive monetary policy.