Investment Grade Market

EMEA IG Loan Volume (EUR b) Q3 & Q4 ‘20 IG loan market volume lowest since years

Eurozone IG credit margin and IRS Benchmark costs recover to pre COVID-19 levels

Investment Grade Market - Market observation per 8 March 2021 -

Total 2020 EMEA IG loan volume proves resilience despite challenging backdrop

  • Volumes for the year are down 10% compared to 2019. A busy Q1 and Q2 are insufficient to offset a slowdown in the second half of 2020
  • In Q1 and Q2 ’20, activity was aimed at arranging (short-term) additional facilities to secure access to liquidity during the first COVID-19 lockdown
  • In the second half of 2020, volumes have decreased to the lowest in years. Companies delay refinancing pending more certainty on the direction of the pandemic and reduced availability of longer dated financing
  • Total number of deals in 2020 is 25% lower compared to 2019. Deal count was especially low since borrowers drew existing revolvers and received government support programmes

Recovery of CDS spreads slowing down

  • Eurozone IG credit default swap (CDS) spreads tighten to 45 bps in November ’20 following a drop in risk sentiment and uncertainty after the election of US President Biden
  • Since then, Eurozone IG CDS spreads have remained stable at around 50 bps
  • Despite this, Eurozone IG CDS spreads are still 15-20% above pre COVID-19 levels

Benchmark costs at pre COVID-19 levels as swap rates fall

  • On the contrary, benchmark IG funding costs (5-year IRS + IG CDS spreads) have recovered to pre COVID-19 levels as a result of decreasing IRS rates
  • In Q4 ’20, benchmark costs tighten further as IRS rates continue to fall
  • The rising IRS rates in Q1 ’21 have widened benchmark costs somewhat, albeit IRS remaining remarkably low
  • As per 5 March ‘21, benchmark costs stand at around 15-20 bps