2019, a record year for bond issuance

Following the geopolitical instability that predominated 2018, accommodative policies of central banks, falling inflation, and the easing of tensions between the U.S. and China contributed to a favorable climate that allowed issuers to secure funds at low rates and extend the average life of their debt.

In this sense, the bond market behaved quite positively in 2019, thanks to strong investor appetite over the course of a year during which financial institutions issued a total of €32 billion, representing a 65 percent increase from the previous year.

A positive trend, and notably green

2019 was also a good year for the green, social, and sustainability bond market, with more than 400 bond issuances of this type, representing close to 50 percent growth. These issuances represented 5 percent of the total bond market. Drilling down, $250 billion in bonds of this kind were issued in 2019, $80 billion more than in the previous year. This growth was driven primarily by an increase of corporate issuance in Europe.

In Spain, the green bond market reasserted its positive trend. In the corporate segment of the market, 2019 saw the entry of new issuers from across various sectors such as telecommunications — where Telefónica issued the sector’s inaugural green bond — and banking, with a number of new entrants issuing their first green bonds.

With respect to the public sector, there were more and more regional governments joining the green initiative: both Spain’s Basque Country and Madrid's regional government stepped up their participation in green bonds, and the regional government in Navarra made its debut. BBVA reprised its role in all the inaugural transactions in which it participated, acting not only as bookrunner, but also as green structuring bank.

BBVA’s green footprint also grew across Europe, where it participated in: the first green bond issuance in Ireland; Vodafone’s inaugural green bond; Enel's groundbreaking bond linked to the UN's sustainable development goals (SDGs); and the first green issuance by a European insurer, Italy’s Generali.

It is expected that in coming years, innovative transactions will emerge, such as the Enel SDG-linked bond, and that investors will try to extend the reach of ESG bonds so issuances dictate not only the use of its proceeds, but rather may also be linked to corporate strategy with diverse sustainability and social goals.

Since 2016, BBVA has assumed the role of bookrunner for green, social, and sustainability bonds 59 times; it is the most active Spanish financial institution in the green bond market.

Looking forward into 2020

The prognosis for 2020 predicts positive performance in the bond markets, particularly in the first quarter owing to potential progress with a U.S. and China trade agreement and the delivery of Brexit. If we witnessed exceptional behavior last year, spurred on by the pursuit of profitability in a context marked by low interest rates, low inflation, and reduced bad debt ratios, a more moderate contraction is expected in 2020.

Nevertheless, investors have begun to show signs of uncertainty about some asset valuations, which, together with elections in the U.S. could cause upticks in volatility in the second half of the year.

With respect to green, social, and sustainability bonds, new record numbers are expected. The bank's analysts forecast that global issuances will increase to $320 billion in 2020, representing an annual increase of 28 percent compared to 2019 volumes. It is expected that European issuers will once again be at the forefront of the growing green, social, and sustainable debt market, and that financial institutions and sovereign issuers such as Spain, Germany, and Denmark will be the key players in this year.

It is forecast that regulatory trends will make the market even more attractive to investors, as clearer definitions of green classifications emerge with the ongoing development of the EU's taxonomy (thus helping preempt so-called “green washing”). Furthermore, new progress in the area of ESG disclosure will harmonize the frameworks used by companies to disclose their exposure and the management of environmental, social and governance risk.

In short, the positive trend in the market looks to have an endless future with promises of novel approaches and expectations from new issuers. Banks should be preparing themselves.