Quarterly Review From the BIS Q1 2007

Usually I do not report on the data and market reviews from the BIS. That is a pitty since it is really goldmine of data and information and in many ways a benchmark publications for financial practitioners. This morning the Quarterly review from Q1 2007 is out and in relation to my entry below on financial markets and ageing it might be a good idea to look at the trends in bond issuance and in general whether Stephen Jen was right in proposing an asset shortage hypothesis. For those of you who do not want to churn through the whole publication Bloomberg has some small reviews and previews ... here is one of them of global bond sales which drifted down on a quarterly basis ...

Global net bond sales fell 2 percent in the first quarter to $866 billion, the first time they've declined for five years, the Bank for International Settlements said.

Early repayments contributed to the decline as issuers worldwide redeemed $682 billion of bonds in the first three months of the year, a 12 percent increase compared with 7 percent growth scheduled, the BIS said in its quarterly review of the financial markets, published today.

``The increase in repayments primarily reflected a rise in the early retirement of bonds and notes,'' said the BIS.

Governments and companies are redeeming bonds using increased revenue from economic growth. Companies such as Rhodia SA, France's largest specialty chemicals maker, and Globe Telecom Inc., the second-largest Philippine phone company by sales, are reducing debt.

Here is the key quote from the report where bonds are classified through currency denomination ...

International bond and note issuance, on a net basis, was subdued in the first quarter of 2007. While total gross issuance rose to $1.7 trillion, following $1.4 trillion the previous quarter, repayments of $682 billion pushed net issuance down by 2% to $866 billion. This was the first time since 2002 that net issuance in the first quarter actually declined from the previous quarter. The increase in repayments primarily reflected a rise in the early retirement of bonds and notes. Year-on-year growth in early repayments reached 12% in the latest quarter, well above the 7% growth of scheduled redemptions. Net issuance of bonds and notes denominated in dollars and yen fell by $39 billion and $7 billion, respectively, while issuance in other major currencies saw modest, but positive, growth. Net issuance in euros and sterling edged up by $2 billion and $1 billion, respectively. Meanwhile, growth in the amount outstanding in a number of other currencies was significant (Graph 4, left-hand panel). Growth of net issuance denominated in Hong Kong dollars accelerated to 43% on a year-on-year basis. Canadian dollar- and Mexican pesodenominated net issuance volumes were at all-time highs for the second consecutive quarter.

There is no break up here between corporate and sovereign debt which seems to be somewhat important. More specifically it is of course impossible to pinpoint whether demographics have anything to do here. Most likely it has not, but these are the figures we need to watch on a long term basis and crucially from the point of view of issuer in order to pin point the effect.