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Debt Capital Markets: 2017 Review and 2018 Forecast

Year-end report from SG CIB Debt Capital Markets and Syndicate Teams.

Find more about the International Debt Capital Markets trends in 2017 and forecasts for 2018 across Bonds, Loans, Hybrids, Securitisation and Liability Management markets.

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Executive Summary

 

"THERE CANNOT BE A CRISIS NEXT WEEK. MY SCHEDULE IS ALREADY FULL."  
Henry Kissinger


2017 is arguably more like 2016's evil twin than its copy cat

Once again, outstanding volumes were raised in the debt capital markets in 2017 across currencies, with a record year for corporates and SSA issuers in particular. This outcome was in line with our expectations communicated at the end of last year, and driven by the same conducive environment that characterised 2016. The low interest rate environment and support from central banks were again major drivers of opportunistic issuance, pre-funding, and M&A financing. Maturity extension also stayed high on the agenda, as highlighted by Austria's impressive EUR 3.5bn century bond (SG as bookrunner).

Investor sentiment, however, was very different this year. The start of 2016 saw record low volumes and high volatility mainly due to falling commodity prices. In Q1 2017, the political uncertainties in the Netherlands and France had the opposite effect and drove many issuers to front-load their annual funding ahead of potential European Central Bank tapering.

The risk-off sentiment that surprised markets in H2 2016 after the Brexit vote and the election of President Trump never materialised in 2017, despite headlines that included ECB tapering, Brexit negotiations, the German elections, North-Korea tensions and the Catalonia crisis. In the financial sector, discussions around Banco Popular, Monte dei Paschi di Siena and the liquidation of Veneto Banca and Popolare di Vicenza were also largely ignored by the market. If anything, resilience only seemed to increase over the year, as illustrated by the record volumes from highyield issuers, the return of Greece to the bond market and the steady stream of new issuance throughout the year, including August.

One theme 2017 may be remembered for is the take-off of the green bond market. While still very small, it is no longer a niche market. It crossed the EUR 100bn equivalent mark worldwide for the first time, and sovereign issuers joined the party in style with France's debut EUR 7bn green bond. More generally in the supras and agencies space, more than 70% of the top 35 issuers in EUR and USD have now issued green bonds and are committed to issuing them at least once a year. Issuance has also gone global, with strong growth from China of course, but also more recently from Japan, India and Australia.

Looking ahead, 2018 might be less predictable than we would like to think. Market resilience to political headlines will again be put to the test with the upcoming Italian elections, while ECB tapering – to which markets have so far refused to react negatively – takes full effects. This combined with the US Federal Reserve's expected rate hikes will put additional pressure on European long-term rates. Overall, we expect liquidity and risk appetite to remain conducive and new issue volumes to be broadly in line with what we have seen over the last two years. Nevertheless, the outlook for the second half of the year is more uncertain, particularly in Europe.