The past two weeks have seen the largest amount of corporate bond issuance in more than two years, following the Bank of England’s moves to buy the assets.
The BoE announced two weeks ago that it was launching a £10bn scheme to purchase UK corporate bonds, similar to the ECB’s move this year, in its move to expand QE.
Data from Dealogic shows that last week saw £1.65bn of sterling corporate bond issuance, while the week before saw £1.78bn of issuance, from the likes of BP and BMW. It is the largest amount of issuance since the start of 2014.
The BoE said it will buy sterling investment-grade corporate bonds from companies making a ‘material contribution’ to the economy.
Andreas Michalitsianos, fund manager on the JP Morgan Sterling Corporate Bond fund, says the BoE move “coupled with structurally powerful, long-term tailwinds already in place” mean there is more growth left in the investment grade credit market.
“We can look to Europe’s recent experience for a sense of where UK [investment grade] credit may be heading. The European Central Bank’s staggeringly ambitious corporate bond purchasing programme has had a major influence, with spreads of eligible issuers tightening by approximately 35 per cent since the announcement of the program in March.
“If the ECB were to carry on at their current rate for the next three years, they would own as many corporate bonds as all of the retail funds in Europe, so they’re hoovering them up at quite a rapid clip. This major incremental, non-economic buyer is a bullish signal underpinning corporate bond markets.”