In line with expectations, 2020 started with strong market activity and record emissions: in the first week alone, Spanish issuers carried out eight operations. “Between January and February, with a prospect of some volatility, with events known as Brexit or the US elections, major domestic issuers set out to place debt, in a natural move to face the year with a comfortable situation “, they point out from Banco Santander.
But with uncertainty and confinement, markets stalled for almost two weeks, and until March 18, with the ECB’s announcement of its PEPP emergency bond purchase program, they did not resume. the activity, setting a new maximum volume. At the beginning of last April, Iberdrola reopened the market with a five-year green bond, followed by Naturgy, Repsol and Red Eléctrica.
Iberdrola reopened the market in April with a five-year green placement
JP Morgan estimates that, particularly in the credit market, secondary differentials will end this year unchanged or slightly narrower. “In terms of volumes in primary, we expect them to be reduced, after the record year we left behind, as banks and companies start the year with a lot of liquidity.”
Bankia analysts comment that they are convinced “that we are going to witness another very active start to the year in the bond market, although we continue with Covid as a backdrop.”
For its part, Bankinter, which highlights its participation in the largest issue in the history of Iberdrola, of 3 billion hybrid bonds, predicts that, as the best expectations for the economies are confirmed, they will suffer the assets are sheltered and those at higher risk will be favored, as well as private fixed income and more illiquid transactions. “2021 will also serve to confirm the trend for green and sustainable bonds.”
Green and social
Barclays highlights the first issue of the Treasury for a period of 30 years last February of 15 billion (the largest in the history of the body and in Spain), and in which it acted as a collector, and expects for this year that ESGs, which encompass green, social and sustainable bonds, continue to gain more and more weight and attract new issuers.
HSBC believes that, unlike other years, in 2021 there is no identified component of volatility: “If it happened, it would come at the hands of what we call unexpected components or so-called queue risks or a slower economic recovery. “As 2020 has taught us, queuing events cannot be underestimated, but it is reassuring to think that central banks are determined to act.”
Banks are being very conservative when it comes to providing financing, they stress from Natixis: “It will continue during the first half of 2021 and most likely during the second. As for the type of operations, they will be very similar to 2020.” .
Support for fiscal stimulus, monetary measures and regulatory easing should act as a ground in asset prices.
Javier González (BNP Paribas)
Given the environment of low rates and narrow credit spreads, Sabadell expects for this year that assets that give some return will be in high demand, so you could see an increase in long-term issues (more than 10 years) or subordinated debt. In terms of developments, “there will be a continuous growth of sustainable bonds.”
Manuel Puig, responsible for debt capital markets by BNP Paribas corporates for Spain and Portugal, predicts for this year that “long-term hybrid and senior debt operations will be alternatives for issuers and investors.” And Javier González, head of debt capital markets for financial institutions in Spain and Portugal of the same entity, adds: “The support of fiscal stimuli, monetary measures and regulatory relaxation should act as a ground in asset prices reducing volatility “.
From Citi, Abraham Douek, head of fixed income in Spain and Portugal for financial institutions, and Bruno Sáenz de Miera, head of fixed income in Spain and Portugal for corporate entities, consider the issuance of 1 billion in green format of BBVA as the most innovative operation of the year. Looking ahead to 2021, they believe the factor that could create more instability is uncertainty about when and how the ECB will begin to reduce the liquidity it is injecting.
ING analysts have no doubt: the most successful products on the market in 2020 have been those that have had a sustainable component; also in 2021, funding for green projects will continue to grow in Europe with the post-Covid economic recovery agenda.
Forecasts for 2021
BBVA. “We believe that rates will remain at a minimum and credit curves will remain relatively flat. And we thought that issuers will take advantage of the conjuncture to extend maturities and issue at the long end of the curve.”
Santander. “In Spain, a large part of the companies did their job in 2020, but we expect interesting operations that seek to strengthen ratings by issuing hybrid bonds.”
Agricultural credit. “Until we can lead a normal life, start spending, travel …, the economy will not recover with the vaccine,” warns Pau Lladó, director of the capital market. Looking ahead to 2021, he states: “Rates are so low that medium-sized companies could appeal to the capital market for the first time. They would have demand.”
Goldman Sachs. “Central banks will remain active in both the primary and secondary markets. We expect slightly lower issuance volumes (15% -20%) than in 2020. This could lead to a further tightening in credit levels.”