DNB’s figures show the market increased to a new record of €105bn in the first quarter of this year. During the financial crisis, the amount outstanding in corporate bonds peaked temporarily at €95bn in the first half of 2010, falling off slightly thereafter. From 2012, the amount outstanding in corporate bonds shot up sharply again, peaking at €105bn in the first quarter of 2013.
Non-financial corporations' recourse to the bond market has grown particularly sharply from 2009 onwards. In the first quarter of 2013, the market increased to a record level of €105bn. One explanation for the boom is the declining interest rates on bonds, both in absolute terms and relative to interest rates on bank loans.
One of the explanations of the growing recourse to the bond market is that interest rates on bonds have been lower than those on bank loans since the start of 2009. In addition, banks have tightened their lending conditions, which makes it more attractive for companies to finance themselves through capital markets instead of bank loans.
Like their counterparts in Germany and the United States, bond yields in the Netherlands are still at historically low levels. In 2006, average five-year interest rates on Dutch government bonds came to 4.2%. Interest rates have been declining sharply since the last quarter of 2008, to below 0.5% in the closing quarter of 2012. Consequently, investors went in search of higher returns by investing in long-term corporate bonds. Due to the great demand for corporate bonds, most new issues were oversubscribed several times, which narrowed the gap with government bonds. The low level of interest rates enabled companies to refinance themselves at lower rates than several years ago. At the end of 2012, five-year interest rates on corporate bonds had fallen to 2.1%, from 6.2% in 2008.
A part of the newly issued corporate bonds in 2013 was attributable to replacements of old loans. The Dutch corporate sector for instance repaid over €7.5bn in total, of which €2.9 bn was refinanced. In the second half of 2013 another €7.2bn should be redeemed, which increases the likelihood of more new issues of corporate bonds. It should be noted, says DNB, that interest rates increased relatively sharply in the second quarter of 2013, which may have a negative effect on bond issuance activity.