Bond Markets Accelerate but Volatility Ahead?

Redemptions from the low-rate Covid era are about to surge – will corporates find a favorable market for refinancing?

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By Vito Sperduto, Allison MacKinnon & Robert McCormack
Published October 9, 2024 | 3 min read

Key Points

  • Debt capital markets issuance has spiked in advance of the U.S. election.
  • Overseas-based corporates are increasingly looking to the U.S. market, attracted by the depth and liquidity available.
  • Demand for ESG-related issuance remains high, even as investors are increasingly looking to an in issuer’s ESG rating.
  • RBC’s debt capital markets function now sits within Global Investment Banking, allowing for more seamless client discussion about funding options.
  • With corporate redemptions about to increase, the current market offers a favorable opportunity for financing.

What’s the rationale for the recent repositioning of the debt capital markets function in RBC Capital Markets?

Sperduto: The new global structure has merged our regional investment banking units into a global model. As part of that, we also moved the debt capital markets franchise from Global Markets into our Global Investment Banking business, creating better alignment for our clients.

McCormack: It’s a natural evolution in our business. It sets us up to have a more seamless discussion with clients right across the capital structure. Should we bring a great M&A idea to our clients, we can instantly talk about how we propose they could fund that with any product, from senior secured debt all the way through to equity.

How are issuers and investors placed in today’s market?

Robert McCormack: It’s certainly been an incredible year, with a significant increase in issuance across all the markets we cover, as clients seek to accelerate their issuance and get in ahead of some volatility towards the end of the year.

Vito Sperduto: There’s a fair amount of refinancing occurring, as we start the redemptions from the wave of Covid financings in that low-rate environment we had in ’20 and ’21.

Allison MacKinnon: In Europe our clients are large multinational borrowers who are funding significant debt programs on an ongoing basis. They’re looking to optimize capital structure. Having accelerated funding plans into the first half of 2024, they’ve taken risk off the table ahead of this election, and they’ve been nimble around the snap elections in the UK and France this summer.

What are the trends around cross-border issuance?

McCormack: We’ve seen a 50% increase in issuance from offshore financials into the U.S. In preferred capital and the hybrid capital market, volumes are up about 200% – we haven’t seen this level of issuance in that space since 2021 – and that’s really getting noticed by financials in other regions.

MacKinnon: We’ve brought Nestlé, Vodafone, Mercedes, and Volkswagen to the U.S. markets. Utilities are looking to different markets as they diversify financing for increased expenditure. We brought RWE to the U.S. market for their inaugural issuance. We worked with EDF both in U.S. and Canadian dollars – building out that stakeholder base of long-term sustainable investors.

‘In preferred capital and the hybrid capital market, volumes are up about 200% – that’s really getting noticed by financials in other regions’

Robert McCormack, Global Head of Debt Capital Markets

What’s the current picture on ESG-related financing?

Sperduto: ESG-related issuance in the debt capital markets has been gaining traction in recent years, and in 2024 we have certainly seen that trend continue.

MacKinnon: We’re really excited to support our clients and communities as we accelerate the transition to a greener economy. We’ve got corporates that are continuing to feature green bonds within their issuance programs. Overall, bond issuance is more than $800 billion year to date, so it’s up 7% from last year, and green bonds are a key feature of that.

Sperduto: We might have seen less usage of the term ESG, but certainly the underlying financings have still been occurring. It’s an incremental alternative for our clients, and we want to support them with all the opportunities they can consider.

MacKinnon: The sustainability profile of a company is very important to investors here in Europe. We’re moving a little bit away from labels, and more towards that holistic perspective on the company – the ESG rating as a proxy for the issuer sustainability profile.

‘We might have seen less usage of the term ESG, but the underlying financings have still been occurring’

Vito Sperduto, Head of RBC Capital Markets U.S.

What are the key issues for the period ahead and how can issuers and investors respond?

MacKinnon: We’ve got our eye on three key things. We’ve got this credit spread compression that is supportive to issuers. It’s a nice opportunity for corporates to take advantage of. Corporate redemptions are stepping up by 35% over the next few years. Can we take advantage of this constructive market now to start to refinance?

We’re watching interest rate curves as well – yes, we’re moving into this easing cycle, but we’re still enjoying an opportunity to fund intermediate dates and long-term financing.

Finally, we’re watching inflows. We’ve had consistent inflows into fixed income and that’s supporting credit spreads.

I’m mindful of potential asset allocation shifts. If we don’t have the same levels of inflows next year, could we see spreads widen, longer periods of volatility and more challenging markets? These things are the counterbalance to this really constructive environment.

‘Corporate redemptions are stepping up by 35% over the next few years – can we take advantage of this constructive market now to refinance?’

Allison MacKinnon, Head of UK & European Corporate Debt Capital Markets

View audio transcript

Our Experts

Vito Sperduto
Vito Sperduto
Head, RBC Capital Markets U.S.
Allison MacKinnon
Allison MacKinnon
Head of UK & European Corporate Debt Capital Markets
Robert McCormack
Robert McCormack
Global Head of Debt Capital Markets

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