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Julio Suarez
AFME Government Bond Data Report Q3 2020
19 Nov 2020
AFME is pleased to circulate itsQ3 2020 Government Bond Data Report. This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU27+UK). Report highlights include: Outstanding amount of green government bonds surpass EUR 60bn, with EUR 10.8 bn issued in green government bonds during Q3 2020, driven by inaugural issuance of the German and Hungarian green bonds, and the reopening of the French, Irish and Belgian green bonds. This represents the highest quarterly issuance of European green government bonds to date. There has been diversification in sovereign ESG issuance in Europe. The EU SURE bond issuance of EUR 17 bn is the first government bond in Europe labelled as social, while Europe’s first sustainable bond was issued in Luxembourg, with both auctions experiencing record levels of over-subscription. Total amount of outstanding ESG bonds (including bonds labelled green, social or sustainable) has reached EUR 80 bn as a result. There has been EUR 985 bn of European (EU+UK) bonds and bills issued during Q3 2020, while issuance has fallen 27.3% compared to the record volumes observed during Q2 2020, it remains above pre-pandemic levels as countries utilise primary market issuance to finance fiscal responses to the impact of Covid-19. European outstanding government debt has underwent a record maturity transformation, with longer maturity profiles a defining feature of debt issuance during Q3 2020. The average bid-cover ratio (demand/amount allocated) stood at 2.22 in Q3 2020, a decrease of 2.3% (QoQ) from Q2 2020 and an increase of 4.2% from Q3 2019 (YoY), suggesting sufficient investor appetite and Central Bank support for the increased volume of bonds and bills. During 3Q20 there were no long-term credit rating changes for European countries. This follows 4 upgrades and 1 downgrade in 1Q20, no upgrades and 2 downgrades in 2Q20, bringing the year-to-date total to 7 upgrades and 4 downgrades (so far in 4Q20 there have been 3 further upgrades and 1 downgrade).
Julio Suarez
AFME Prudential Data Report Q2 2020
28 Oct 2020
This report collates information on EU GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 30 June 2020. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as of October 2020. Among the main findings of this report: European GSIBs reported in 2Q 2020 record CET1, T1 capital and Liquidity Coverage ratios on the back of the build-up of precautionary buffers and regulatory support to facilitate the COVID-19 economic recovery. The weighted average CET1 ratio increased by 40bps during 2Q 2020. Of this, regulatory relief on banks’ capital requirements (i.e. CRR “quick fix” and transitional implementation of IFRS9) had a weighted average impact of 24bps, RWA contraction (ex-regulatory relief) 6 bps, retained earnings 11bps, and FX and others -1bp. The European CoCo market reopened in the second quarter of 2020 with the issuance of 30 AT1 notes since May-20 equivalent to €18.6bn in proceeds. CoCos issued during 2Q20 and 3Q20 have been originated with higher coupon rates compared to those issued in 1Q20 (5.9% in 2Q20 and 5.4% in 3Q20 vs. 4.6% in 1Q20 for fixed rate CoCos). The end of Too Big To Fail (TBTF): Pages 21-25 provide a summary of a preliminary analysis on banks’ borrowing costs during the COVID-19 market distress episode (as a proxy to measure the so-called “implicit subsidy” of large banking institutions). During the March 2020 market stress episode, large systemic European institutions exhibited higher funding costs compared to those for smaller non-systemic institutions. This results illustrate the success of TBTF reforms and progress in reducing the moral hazard posed by the largest financial institutions and the funding advantage for systemic banks compared to smaller institutions. Early 3Q 2020 earnings results have shown continuing progress in building capital and a sharp decline in credit impairments since 2Q 2020. These and other features of the EU G-SIBs Q3 results will be picked up in the next issue of the report which will be published in late November.
Julio Suarez
AFME Government Bond Data Report Q2 2020
8 Oct 2020
AFME is pleased to circulate itsQ2 2020 Government Bond Data Report. This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU27+UK). Report highlights include: Record breaking EUR 1,351 bn of European (EU+UK) bonds and bills issued during Q2 2020, the largest issuance volume of any quarter to date, as countries expand primary market issuance to finance fiscal responses to the impact of Covid-19. The average bid-cover ratio (demand/amount allocated) stood at 2.28 in 2Q20, an increase of 5.4% (QoQ) from 1Q20 and a decrease of 1.5% from 2Q19 (YoY), suggesting sufficient investor appetite and Central Bank support for the increased volume of bonds and bills. Outstanding amount of EU green government bonds surpasses EUR 50bn, after the Dutch, Polish, Belgian and Lithuanian green bonds were reopened, increasing the amount outstanding to EUR 50.6bn. During 2Q20 there were 2 downgrades and 0 long-term credit rating upgrades for European countries (following 4 upgrades and 1 downgrade during Q1 2020), bringing the year to date total to 5 upgrades and 3 downgrades. There has been 1 further upgrade in 2020 to date. All downgrades in 2020 YtD have been linked to the impact of the Covid-19 crisis. During Q2 2020, quarterly traded volume was equal to volume observed in Q2 2017 and Q2 2019, according to TRAX CDS spreads normalise in Italy, Portugal and Spain after peaking in March 2020.
Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q2 2020
25 Aug 2020
The Report contains European leveraged finance market trends for the second quarter of 2020, which includes issuance and credit performance figures for the high yield and leveraged loan markets. Key highlights: European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €70.0 billion in proceeds in 2Q’20, a 25.9% decrease from €94.4 billion in 1Q’20 but an increase from €63.4 billion in 2Q’19. This quarterly decline was driven mainly by a decrease in leveraged loan issuance. Primary high yield bond issuance totaled €24.2 billion on 48 deals in 2Q’20, a 16.9% decrease from €29.1 billion on 71 deals in 1Q’20 and a 17.0% decrease from €29.2 billion on 71 deals in 2Q’19. The proportion of USD-denominated issuance increased to 34.1% of all issuance in 2Q’20, up from 24.2% in 1Q’20 and from 28.6% in 2Q’19. The leading use of proceeds for high yield bonds issuance in 2Q’20 was repayment/refinancing of debt with €15.0 billion, which was up 40% from €10.7 billion in 1Q’20 and up from €7.4 billion in 2Q’19. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €45.7 billion on 64 deals in 2Q’20, down 29.9% from €65.2 billion on 83 deals in 1Q’20 but a 33.8% increase from €34.2 billion on 76 deals in 1Q’20 General corporate purposes were the largest use of proceeds in 2Q’20 with €18.9 billion, followed by refinancing/repayment of debt with €11.5 billion, and LBO/MBO with €6.9 billion or 15.1% of the total. Pricing spreads for institutional loans widened by 76 basis points (bps) q-o-q and by 1 bps y-o-y. Spreads for pro rata loans tightened by 3 bps q-o-q and by 87 bps y-o-y. Credit quality: As of June 2020, S&P reported the trailing 12-month speculative-grade default rate at 3.4%, an increase from 2.4% in March 2020 and from 2.3% in June 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 2.8% in June 2020, up from 1.9% in March 2020 and from 1.2% in June 2019. Fitch also reported an increase in leverage loan default rates to 6.4% in June 2020 (including c* and cc* rated issuers as if those had already defaulted). 17 bond-related defaults were reported in the second quarter of 2020 by Standard and Poor’s and Moody’s, 15 in developed market Europe and two in emerging market Europe. Missed interest payment was the most frequent reason for default. According to Moody’s, in 2Q’20 downgrades exceeded upgrades in Europe (123 downgrades to 5 upgrades), a worse ratio than 78 downgrades to 4 upgrades in 1Q’20 and than 40 downgrades to 16 upgrades in 2Q’19. S&P also reported a deterioration in the downgrades-upgrades ratio. According to S&P, in 2Q’20 downgrades exceeded upgrades in Europe (152 downgrades to 3 upgrades), a worse ratio than 97 downgrades to 9 upgrades in 1Q’20 and than 25 downgrades to 28 upgrades in 2Q’19.
Julio Suarez
AFME Equity Primary Markets and Trading Report Q2 2020
12 Aug 2020
AFME is pleased to circulate its Equity Primary Markets and Trading Report for the second quarter of 2020 (Q2 2020). The report provides an update on the performance of the equity market in Europe in activities such as primary issuance, Mergers and Acquisitions (M&A), trading, and equity valuations Key highlights: Equity underwriting on European exchanges accumulated a total of €78.6 bn proceeds in the first half of 2020 (1H 2020), an increase of 22% YoY from the value originated in 1H 2019 (€64.4 bn). Follow-on offerings rose 50% YoY, the largest 1H amount since 2017. IPO proceeds decreased 59% YoY, with the lowest 1H number of IPOs since 2009. Completed Mergers and Acquisitions (M&A) of European companies totalled €331.2bn in 1H 2020 a 24% decrease from the amount completed in 1H 2019 (€433.3bn). The decline in completed M&A activity was driven predominantly by a reduction in cross-border deals (i.e. with companies located outside Europe). The amount of announced M&A totalled €315.5bn in 1H 2020 a 21% YoY decrease from the same period of 2019. Average daily equity trading activity on European main markets and MTFs rose 28% YoY in 1H 2020. Domestic market capitalisation of European listed shares stood at €12.3tn at the end of June 2020, a 15% YtD decrease from €14.5 at the end of 2019. Update on MiFID II dark trading caps:The European Double Volume Cap (DVC) mechanism seeks to limit the amount of dark trading of equity-like instruments on EU venues. ESMA publishes on a monthly basis the list of instruments temporarily banned from dark trading at the EU or trading venue level after their trading volumes surpass pre-determined dark trading thresholds. As of July 2020 there were 317 instruments suspended from dark trading at the EU or trading venue level, which represents c1% of the Universe of equity-like instruments on ESMA’s July DVC files (27,208 equity or equity-like instruments). The number of instruments banned from dark trading has stabilised in recent months at between 300-400 (from above 1,200 in August 2018). 1H 2020 variation of European Equity activity EU27 member countries, UK and Switzerland
Julio Suarez
Impact of COVID-19 on European Capital Markets: Market Update
13 Jul 2020
AFME has published a new research note on the“Impact of COVID-19 on European Capital Markets: Market Update”. The purpose of this report is to provide an update on how European capital markets have performed during the COVID-19 outbreak. This report follows a first publication launched in mid-April which assessed the initial impact of COVID-19 on Europe’s capital markets. Key findings: Issuance levels of investment grade (IG) bonds have reached record weekly, monthly and quarterly volumes.Q2 2020 saw the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe totalling EUR 225bn in proceeds. The increase has been largely driven by Central Bank support. An ESG recovery.European social, sustainable, and green bond issuance reached EUR 55.2bn in Q2 2020, the highest quarterly issuance volume to date. The increase was predominantly driven by social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn. European market liquidity has deteriorated over the last few months.In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels. Follow on equity offerings have continued to support the recoveryas companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017. After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds from 24 deals.Issuance volumes continue subdued compared to pre-COVID levels. European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchangeswhich totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of total SME funding compared to bank lending. Record volumes of bank lending.Euro area statistics have shown a marked increase in corporate net lending and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients. The report follows from AFME’s research on theinitial impact of COVID-19 on Europe’s capital marketsand summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus. – Ends –
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