Debt Capital Market
The Debt Capital Market (DCM) saw significant developments and trends in 2022, as highlighted by various sources. One of the main narratives was the dominance of sustainable finance in the regulatory agenda. With expectations that the forthcoming EU Green Bond Standard would be a key feature in 2023. Additionally, there was anticipation for an increasing focus on distributed ledger technology (DLT) and blockchain. Driven by initiatives like the EU’s DLT Pilot Regime.
The year 2022 was characterized by issuers retreating from global bond markets. This was attributable to rising interest rates, which ended the era of cheap debt financing. The debt capital market supply for the year reached USD 6.3 trillion, marking a 30% year-on-year decline. This decrease was particularly notable in the Americas, Europe, the Middle East, and Africa (EMEA). The Asia-Pacific (APAC) regions, with respective declines in debt capital market activity.
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The impact was profound in sub-investment-grade markets, where soaring funding costs. Limited refinancing needs led to a significant drop in deal-making. High-yield (HY) issuance plummeted to its lowest annual level in a decade. With the USD 227 billion issued being less than half the ten-year annual average. Investment-grade (IG) issuers also saw a notable decline in deals, although less stark than in the HY market.
Environmental, Social, and Governance (ESG) DCM activity presented a mixed picture. While the volume of ESG instruments issued in 4Q22 declined compared to the same quarter in the previous year. ESG fundraising gained a larger share of the overall issuance, accounting for around 12% of all new bond issuance. Sovereigns, supranationals, and agencies (SSAs) were the most active issuers of ESG bonds in 2022, raising USD 278 billion via these products.
Looking ahead, corporates were identified as having the highest refinancing needs among different issuer classes for the next year, with more than USD 5.3 trillion of bonds coming due in 2023. This environment suggests a potentially challenging yet opportunistic landscape for DCM activities, especially for sectors poised to navigate through refinancing needs and capitalize on the growing importance of sustainable finance.