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Bonds 04 Feb 2019

2018: a year marked by volatility in the bond market

In 2018, there was declining activity in the bond business due to an increase in market volatility. In Europe, the total volume of issued bonds totalled €1.47 trillion, approximately 10% less than in 2017. Furthermore, 2018 witnessed the consolidation of trends like green bonds –  which have been on the market for more than ten years now – and the emergence of products related to new technologies.

Price instability in financial markets has determined the behavior of the bond business in 2018. Political tensions in Italy; the trade war between the U.S. and China; uncertainty over Brexit; and finally, the Federal Reserve policy of raising interest rates constitute the main causes of volatility in the markets.

These factors have led to a decrease in activity in the bond market on a global scale and an even greater decline of 25% on a national scale compared to 2017. The sector with the greatest descent was corporate clients, while the public sector is the sector that held up the best.

Green bonds, well-established in the market

Even though the volume of debt issued in Spain in 2018 was 4% less than in 2017, a record-breaking year, social and sustainable bonds represented a greater portion of the total volume of issued bonds. They are now a well-established investment alternative.

Both bond issuers and investors demonstrated greater interest in products of this kind. In fact, new industries now want to participate in these initiatives and join the market of green, social and sustainable bonds to finance products that fall under the categories defined by the Green Bond Principles.

Of the operations formalized this year, the inaugural bonds issued by ACS Servicios Comunicaciones y Energía for €750 million, and the Basque government for €500 million stand out. The former was a green bond, and the latter a social bond – both led by BBVA, which structured the bonds.

BBVA also played an essential role as an issuer in this market, issuing the first green bond for €1 billion last May, the largest amount issued by a eurozone bank yet.

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Social and sustainable bonds are now a well-established investment alternative

New horizons to explore in 2019

Predictions for 2019 indicate that the liquidity available to investors will remain at similar levels from 2018, with bond volume recovering.

This past year investors became more demanding when it comes to prices and credit rating and this trend is expected to become more pronounced in the coming months. Without a doubt, it will be critical for issuers to choose the windows of opportunity in the market carefully, and for investors, to carefully select their investments.

We can’t talk about the future of the sector without mentioning new technologies, which burst into the markets in 2018, playing a leading role. Blockchain technology is one example. In terms of bond markets, experts say that this technology will be immediately applicable to private operations, but will take some time to be used in public operations. Nevertheless, the industry has to overcome a new challenge: agreeing on a standard that defines a set a common parameters for all participants.

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