Corporate Bond Markets Rohini Tendulkar - IOSCO Corporate Bond Markets Rohini Tendulkar Created Date:

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    Corporate Bond Markets Rohini Tendulkar

    Economist

    IOSCO Research Department

  • • Growing in size and importance

    • Increasingly international

    • Searching for some yield

    • The transformation of secondary markets

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    Themes

  • Importance of Corporate Bond Markets

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  • For non-financial corp bonds outstanding, growth has been steady

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    Amount Outstanding, US$

    *Data source: BIS, AsianBondsOnline, IMF

    Financial

    Non-financial

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    Bank credit, Non-financial Corporate Bond, Non-financial

    *Source: BIS and ABO

    …while in some major economies, bank credit to non-financials is shrinking

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    Infrastructure bond issuances

    *Source: Dealogic

    Corporate bond markets are being tapped into for long-term financing, such as infrastructure financing…

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    Real-estate/property developers - issuances

    *Data source: Dealogic

    … also at the global level, real-estate and property developers (incl. REITs) are turning to corporate bond markets.

    Emerging

    Markets

    Developed

    Markets

  • International nature

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  • Corporate bond market activity is spreading globally, with emerging market issuances making up a growing proportion…

    9 *Data source: IOSCO Research Department, data sourced from Dealogic

    No data

    3000

    Source: IOSCO Research

    Corp Bonds Iss.

    in $US Billions

    Global heat map of total issuances between 2007

    and 2013

  • Changing interest rate environment

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    http://loanshak.com/files/2013/01/interest-rate.jpg

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    High Yield vs Investment Grade issuances, issuance volume

    *Data source: Dealogic

    High yield bond issuances have increased in developed markets since the onset of the crisis but not so much in emerging markets.

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    Issuances for refinancing purposes

    *Data source: Dealogic

    After 2008/2009 bonds issued for refinancing purposes jumped but growth has been flat since.

    Developed Mkts,

    Refinancing

    Emerging Mkts,

    Refinancing

  • An increasing number of emerging market issuances are putable…

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    Putable bond issuances, volume

    *Data source: Dealogic

    Emerging

    Markets

    Developed

    Markets

  • Secondary Markets Transformation

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  • Shrinking dealer inventories…

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    Dealer inventories, bond turnover ratio

    *Source: SIFMA, NYFR

  • Disentangling phantom liquidity

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    CDO, ABS issuances and dealer inventories

    *Source: Dealogic, NYFRB

    Phantom liquidity: liquidity provided to the market on the back of

    potentially systemically risk practices.

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    Credit Risk

    Interest Rate Risk

    Call Risk

    Liquidity Risk

    Yield

    Bond Issue Investor Dealer Structured

    Debt Issue

    Liquidity Risk Liquidity Risk

    Financial

    System

    Primary

    Market

    Secondary

    Market

    Structured

    Markets

    Bond Issue Investor Dealer

    Liquidity Risk

    Financial

    System

    Credit Risk

    Interest Rate Risk

    Call Risk

    Liquidity Risk

    Yield

    Bond Issue Investor Financial

    System

    Credit Risk

    Interest Rate Risk

    Call Risk

    Liquidity Risk

    Yield

    Pre-crisis

    Post-crisis

    Adjustment

    Investor Confidence Issues

    Systemic Risk

    Financing Issues

    Dealer

  • 1. Does standardisation of bond issuances increase efficiency? 2. How can and should technology transform corporate bond markets?

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    Rohini Tendulkar

    Economist

    IOSCO Research Department