Hold on: Global debt EXPLODING as day of financial reckoning nears

Wednesday, October 05, 2016 by

Global debt issuance is on course to hit a record high in 2016 as figures showed sales this year topped $5 trillion (£3.9 trillion) at the end of September.

Article by Szu Ping Chan

Debt issuance rose to $5.02 trillion in the nine months to September 22, according to Dealogic, putting 2016 on course to beat the all-time high of $6.6 trillion recorded in 2006.

Record low-interest rates have encouraged countries and companies to issue debt as central banks around the world try to stimulate growth.

The data also showed corporate issuance of investment-grade debt reached a record high of $1.54 trillion since the start of the year, up from $1.41 trillion in the same period a year earlier.

Dealogic’s figures also highlighted the impact of the Brexit vote.

Sterling-denominated investment-grade debt rose to $21.3bn in the first nine months of the year, up slightly from $20.9bn raised in the same period of 2015.

Volumes in July fell to their lowest since 2000 as the referendum result slowed issuance, with just $564m issued, according to Dealogic.

However, issuance is expected to pick up later this year following the Bank of England’s decision to buy £10bn of corporate debt as part of its revamped bond-buying programme.

Sterling issuance in August jumped to six times the average following the Bank’s announcement.

Green bonds – which raise money for environmentally friendly projects and often carry tax exemptions – are also rising in popularity. Activity surpassed full-year 2015 levels in September as volumes reached a record high, worth $48.2bn.

Mark Carney, the Governor of the Bank of England, has spoken out in favour of green finance, describing it as a “major opportunity” for investors.

In a speech last week, he said long-term financing of green projects in emerging markets could help to promote financial stability.

“By ensuring that capital flows finance long-term projects in countries where growth is most carbon intensive, financial stability can be promoted,” he said.

More than $13 trillion of global sovereign and corporate debt trades at negative yields, highlighting the influence of central banks.

Separate M&A data published by Dealogic showed that global mergers and acquisitions (M&A) volumes fell to $2.5 trillion in the first nine months of 2016, down 24pc compared with $3.27 trillion in the same period last year.

The figures showed a decline in M&A volumes across Europe.

“This year, the UK Brexit vote in June, a turbulent election cycle in the US and a slump in equity capital raising globally have shadowed opportunities for companies considering acquisitions,” Dealogic’s report said.

By contrast, US inbound M&A rose to the highest on record, to $331.8bn in the first nine months of 2016.

Dealogic noted that while the UK had “a slow start to the year” with $74.9bn of activity announced in the first half of 2016, down 57pc on the same period a year earlier, it said SoftBank’s £24bn bid for ARM Holdings boosted M&A activity in the third quarter to $61.1bn, which represents the best third quarter since 2008.

Global data also showed technology replaced healthcare this year as the leading sector, with $465.3bn in deals.

Read more at: Telegraph.co.uk


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