London remains leading centre for international bond trading, report shows

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Written by Ray Clancy

Thursday, 24 June 2010 08:31

The nominal value of bonds outstanding with UK based issuers totalled a record £3,353 billion at the end of 2009, up 5% on the previous year, a research report shows.

This means that London remains the leading centre for international bond trading with an estimated 70% of secondary market turnover, according to the Bond Markets 2010 report issued by TheCityUK, a new independent membership body for promoting the UK financial and related professional services industry.

UK Government net debt issuance, which was below £50 billion in the years prior to the economic crisis, increased to £211 billion in the financial year 2009/10 and is likely to range between £100 billion and £150 billion over the next three years, it says.

The outstanding value of UK public sector net debt grew by 20% in 2009/10 to £890 billion. Nearly £120 billion of this was from financial sector interventions and demand for UK bonds has been underpinned by the Bank of England’s quantitative easing programme, the report also says.

The report also reveals that overall amounts outstanding on global bond market increased by 10% in 2009 to a record $91 trillion. Most of this was in domestic bonds with the US as the largest market accounting for 34% of the value outstanding, followed by Japan 13%. The UK’s share was 6%.

Concerns about the ability of some countries to continue to finance and service their debt have come to the forefront since late 2009. This was partly a result of large public debt taken on by governments to reverse the economic downturn and finance bank bailouts, the report points out. The downgrades of Greece’s credit rating, along with subsequent cuts in Ireland, Spain and Portugal have added to the negative sentiment. This has resulted in the tightening of market conditions for government refinancing in these countries.

‘The corporate bond market began 2010 at a strong pace following on from the rally in 2009 which drove borrowing costs sharply lower. Issuance has however stalled due to mounting concerns over public debt problems in some Euro area countries. Europe is nevertheless moving towards a more US style bond market as companies there increasingly diversify away from reliance on banks for funding,’ said Marko Maslakovic, senior manager for economic research at TheCityUK.