corporate bond markets rohini tendulkar - iosco · corporate bond markets rohini tendulkar created...

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Corporate Bond Markets Rohini Tendulkar

Economist

IOSCO Research Department

• Growing in size and importance

• Increasingly international

• Searching for some yield

• The transformation of secondary markets

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Themes

Importance of Corporate Bond Markets

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For non-financial corp bonds outstanding, growth has been steady

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Amount Outstanding, US$

*Data source: BIS, AsianBondsOnline, IMF

Financial

Non-financial

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Bank credit, Non-financial Corporate Bond, Non-financial

*Source: BIS and ABO

…while in some major economies, bank credit to non-financials is shrinking

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Infrastructure bond issuances

*Source: Dealogic

Corporate bond markets are being tapped into for long-term financing, such as infrastructure financing…

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Real-estate/property developers - issuances

*Data source: Dealogic

… also at the global level, real-estate and property developers (incl. REITs) are turning to corporate bond markets.

Emerging

Markets

Developed

Markets

International nature

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Corporate bond market activity is spreading globally, with emerging market issuances making up a growing proportion…

9 *Data source: IOSCO Research Department, data sourced from Dealogic

No data

<10

10 - 200

200 - 400

400 - 600

600 - 800

800 - 1000

1000 - 2000

2000 - 3000

>3000

Source: IOSCO Research

Corp Bonds Iss.

in $US Billions

Global heat map of total issuances between 2007

and 2013

Changing interest rate environment

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High Yield vs Investment Grade issuances, issuance volume

*Data source: Dealogic

High yield bond issuances have increased in developed markets since the onset of the crisis but not so much in emerging markets.

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Issuances for refinancing purposes

*Data source: Dealogic

After 2008/2009 bonds issued for refinancing purposes jumped but growth has been flat since.

Developed Mkts,

Refinancing

Emerging Mkts,

Refinancing

An increasing number of emerging market issuances are putable…

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Putable bond issuances, volume

*Data source: Dealogic

Emerging

Markets

Developed

Markets

Secondary Markets Transformation

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Shrinking dealer inventories…

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Dealer inventories, bond turnover ratio

*Source: SIFMA, NYFR

Disentangling phantom liquidity

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CDO, ABS issuances and dealer inventories

*Source: Dealogic, NYFRB

Phantom liquidity: liquidity provided to the market on the back of

potentially systemically risk practices.

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Credit Risk

Interest Rate Risk

Call Risk

Liquidity Risk

Yield

Bond Issue Investor Dealer Structured

Debt Issue

Liquidity Risk Liquidity Risk

Financial

System

Primary

Market

Secondary

Market

Structured

Markets

Bond Issue Investor Dealer

Liquidity Risk

Financial

System

Credit Risk

Interest Rate Risk

Call Risk

Liquidity Risk

Yield

Bond Issue Investor Financial

System

Credit Risk

Interest Rate Risk

Call Risk

Liquidity Risk

Yield

Pre-crisis

Post-crisis

Adjustment

Investor Confidence Issues

Systemic Risk

Financing Issues

Dealer

1. Does standardisation of bond issuances increase efficiency? 2. How can and should technology transform corporate bond markets?

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Rohini Tendulkar

Economist

IOSCO Research Department