(Corrects the source of sterling-denominated bond trading
volume in penultimate paragraph)
By Jamie McGeever
LONDON Aug 23 Issuance of sterling-denominated
UK corporate bonds has risen nearly 15-fold ahead of the Bank of
England including them in its bond-buying stimulus programme
designed to stave off a Brexit-led economic slowdown, according
to Thomson Reuters data.
The UK corporate bond universe is small compared to other
developed corporate bond markets, particularly the United
States, but firms have ramped up issuance before the BoE's
planned entry into the market next month.
They have taken advantage of a plunge in borrowing costs
since Britain's vote on June 23 to leave the European Union and
the BoE's aggressive policy easing in response earlier this
The average yield on triple-A rated UK company bonds fell
below 1.4 percent earlier this month, tracking a
steep fall in the benchmark 10-year sovereign debt yield to a
record low 0.5 percent, from nearly 1.4 percent before the
Sterling-denominated corporate issuance has totaled 4.45
billion pounds ($5.9 bln) so far this month, a near 15-fold rise
from 297 million pounds in August last year, Thomson Reuters
data showed. And there are still five UK business days left in
The number of deals has risen to seven from one, while
trading in the secondary market has also increased.
"The recent uptick in issuance should peter out if the surge
in August was Brexit-related," said Tomas Hirst, European credit
strategist at CreditSights.
"But firms will probably issue a little more than they
otherwise might if the BoE wasn't about to come into the market.
The funding environment is positive and there are tailwinds," he
To counter the anticipated economic slowdown following the
Brexit vote, the BoE announced on Aug. 4 that it would revive
its quantitative easing bond-buying programme.
Its decision to include corporate bonds in the expanded
asset purchase scheme prompted the surge in issuance in what is
traditionally the slowest month of the year, although it remains
a relatively small market.
HSBC analysts note that 71 percent of UK company funding
comes from loans, and of the 29 percent that does come via bond
issuance far more is issued in euros and dollars than sterling.
Around 150 billion of UK company bonds could be eligible
under the scheme, out of a total universe of 400 billion
The traded volume of sterling-denominated UK corporate bonds
observed by market data and post-trade service provider Trax has
also risen but not by as much. The average daily volume so far
this month is 355.5 million pounds, compared with 262.5 million
pounds a year ago.
Trax, which provides post-trade services for around two
thirds of all fixed income transactions in Europe, is a
subsidiary of MarketAxess.
($1 = 0.7586 pounds)
(Reporting by Jamie McGeever; Editing by Susan Fenton)