The Banking Executive Magazine - July 2024 Issue

Eurobonds Global Market BOND MARKET SIZE The International Capital Market As- sociation ICMA estimates that the overall size of the global bond mar- kets in terms of USD equivalent no- tional outstanding, is approximately $128.3tn. This consists of $87.5tn SSA bonds (68%) and $40.9tn corpo- rate bonds (32%). In terms of country of incorporation, the global corporate bond markets are dominated by the US ($10.9tn) and China ($7.4tn). Between them they make up 45% of the total global corporate bond market. 53% ($21.5tn) of outstanding corporate bonds are issued by financial institu- tions. SIZE OF EU BOND MARKET The EU bond market encompasses debt securities issued by European Union member states. The EU bond market includes bonds issued by in- dividual member countries, as well as bonds issued by EU institutions like the European Commission. These bonds serve different pur- poses, such as funding government expenditures, infrastructure projects, or policy programs. The European Commission, acting as the EU bor- rower, has a strong track record of successful bond issuances over the past 40 years. All EU bonds are de- nominated exclusively in euros. The proceeds from these issuances fund EU policy programs. EU bonds gen- erally have low default risk and high liquidity. However, due to the vary- ing economic strength of the 27 member states, yields and other bond characteristics can differ signif- icantly. Investors should consider these factors when making informed decisions. Since mid-2022 the Eurosystem’s balance sheet declined by around € 2,000 billion, or more than 22 per cent. The largest part of this decline is due to banks having repaid a sub- stantial share of the loans taken from the Eurosystem via the targeted long- term refinancing operations. This has released many assets previously used as collateral back to the market, in- cluding government bonds. More- over, the Eurosystem owns smaller amounts of bonds since it no longer reinvests maturing bonds under its asset purchase programme. The reduction of the Eurosystem’s balance sheet and the fact that gov- ernments across the euro area have issued record amounts of debt have substantially increased the availabil- ity of bonds to the market. This has helped to bring the Eurosystem’s footprint in government bond mar- kets closer to pre-pandemic levels. the BANKING EXECUTIVE 10 ISSUE 187 JULY 2024 Global Corporate Bond Markets Source: ICMA analysis using Bloomberg Data (August 2020)