AS we enter the fourth quarter of 2022, it seems a lot more than just nine months ago that bond markets were enjoying record levels, fuelled by governmental fiscal stimulus, historically low interest rates, opportunistic refinancings and a boom in M&A and buyout deals.
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Forecasters were pointing to the potential risk of increased interest rates but, broadly speaking, there was an optimistic tone for a positive year in 2022. However, after a promising start to the year, it was not long before the bull market in bonds that had been running since 1982 was over. In the second quarter, bond markets were hampered by central banks grappling with inflation, recession risk and geopolitical concerns.
The conflict in Ukraine triggered a worldwide cost-of-living crisis, setting the global economy on a course of slower growth and rising inflation, largely driven by steep increases in the prices of energy and food and supply chain problems.
Both economies and markets are now suffering from aggressive rate hikes at the same time as liquidity withdrawal, with the World Bank now forecasting that global growth will slow to 2.9% in 2022.
Against this background, lenders showed significant risk aversion and companies paused as rates and yields made borrowing more expensive. While some deals were brought forward as borrowers opted to secure financing for future transactions, broadly there was a steep decline in both high-yield and investment-grade corporate debt volumes.
In fact, US high-yield issuance volumes are on track to be the lowest since 2008. Investment-grade issuance is also down as rates continued to rise. By way of contrast, the last major US corporate debt issuance slowdown occurred during the 2007-2008 financial crisis.
In Europe, September saw the European high-yield market reopen after the summer lull but both the inflationary and economic outlook continue to affect demand for risk assets. What comes next will probably depend on whether interest rates continue to rise, and whether the US slips into a recession.
This is not to say that everything is bleak. While volatility has kept issuers away from markets with several issuers cancelling deals in the first half of the year, some companies are prepared to bite the bullet of high prices when they need to raise debt. Also, a lack of new deals has led to pent-up demand, with portfolio managers waiting for opportunities to spend cash. US and European corporate balance sheets continue to remain surprisingly strong despite the higher-rate environment and increase in input costs.
While corporate bond listings have slowed, TISE has continued to see growth in debt listings which are less correlated to the current challenging market environment.
TISE listings in 2022
At TISE, which is one of Europe’s leading stock exchanges for listing international bond issuances, the first half of 2022 comprised two very different quarters in terms of new-listing volumes. Following a record 2021 and a record first quarter this year, new listings were subdued primarily due to a significant shift in macro-economic conditions.
In common with our competitor debt markets, we have not been immune to market conditions, but with the refinement of our core bond market proposition and the ongoing activity from our listing members, we have seen further growth in the size and value of our market. There was an 11.2% rise year on year in the total number of securities on TISE’s Official List, which reached 3,815 at 30 June 2022, representing a total market value of more than £600 billion.
Despite a slowdown in new business activity, TISE remains the leading European venue for listing high-yield bonds and, while the high-yield market is being particularly impacted by the wider economic backdrop, as conditions improve, there is expected to be a relatively healthy pipeline in institutional loans and high-yield bonds earmarked for M&A and LBO transactions which should precipitate listings in the future.
In August 2021, we enhanced our international bond listing offering through the introduction of our Qualified Investor Bond Market. The QIBM has helped to develop, diversify and strengthen our proposition as one of Europe’s leading stock exchanges for international bond listings. There were more than 1,000 newly listed bonds on QIBM in its first year.
In terms of trends, there was a 7.6% increase year on year in private-equity-related listings on QIBM during the first half of 2022. The private-equity sector remains very strong with a significant amount of capital to be deployed and TISE remains the leading venue for the listing of securities related to this transactional activity. There have also been more investment-grade corporate bonds, sovereign bonds (including another bond from the States of Jersey) and securitisations listed on QIBM during the same period.
TISE bond listings are also including a growing number of sustainable bonds. In July 2021, we became a Partner Exchange of the United Nations’ Sustainable Stock Exchanges Initiative and we launched our comprehensive sustainable market segment, TISE Sustainable. TISE Sustainable is open to issuers and securities from across both our bond and equity markets who are independently assessed as complying with an internationally recognised framework or rating which demonstrates their environmental, social or sustainable credentials.
Since its launch, we have admitted sustainable issuers, green bonds, sustainable bonds, sustainability-linked bonds and humanitarian catastrophe bonds to TISE Sustainable. At the end of June 2022, there were more than £13 billion of listings on TISE supporting environmental, social and sustainable initiatives, which demonstrates the role we can play as a facilitator of sustainable capital flows within global markets.
It is this diversified nature of bond listings which, despite the challenging macro environment, has supported continued market growth at TISE.
