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May 14 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says that Q113 rating migrations remained negative but improved to the best level since Q211 after the volume of downgraded bonds from eurozone-domiciled non-financial issuers declined.
Downgrades fell for the third consecutive quarter to 1.1% of outstanding volume from 1.7% at the end of 2012, while the upgrade rate remained relatively unchanged. Firms in the eurozone accounted for three-quarters of downgrade volume - a marked decline on the 91% level set in the prior quarter. Most of the activity related to Italian and French financials.
Financial downgrade volume continued to fall in Q113, extending the easing trend that has developed over the past two quarters. The downgrade rate of 1.3% is far below the 5% average recorded in 2012. First quarter upgrades were broadly in-line with the positive activity in the second half of 2012, but half the average 2012 average rate.
New issuance in the first quarter declined by 41% year-on-year, driven by a 70% drop in covered bonds as corporates resumed regular volumes of issuance following prior-year pre-funding for 2013. Financials issued at a 33% lower rate compared to the prior quarter and non-financials receded 13%.
High yield marked a record quarter with EUR28bn in new bonds by developed-market non-financials. Issuance from corporates in the eurozone was stagnant despite the overall improvement in market conditions.
Superior returns from high yield continued to attract investor funds, with the asset class seeing net inflows totalling EUR2.9bn in the first quarter. Lagging investment-grade returns explain the EUR3bn of net outflows for this segment over the same period.
New issue coupons touched fresh lows across the credit spectrum in Q113 as investors continued to drive down risk-premia. Firms took the opportunity to extend yield curves, with 30% of new issuance in the quarter possessing a tenor greater than or equal to 10 years, compared to 18% in 2008.
Fitch’s quarterly EMEA corporate bond market report provides detailed analysis and data on rating and issuance trends. The full report, entitled “EMEA Corporate Bonds: Rating and Issuance Trends” is available at www.fitchratings.com or by clicking on the link above.
Link to Fitch Ratings’ Report: EMEA Corporate Bonds: Rating and Issuance Trends