Bond markets re-emerge following the Credit Crunch

Corporate bonds have become a popular method of raising funds for companies seeking alternative funding. Banks do not lend as they used to in the past. Raising funds through corporate bonds presents a way around this problem, as it allows organisations to borrow from large numbers of investors seeking to make a return, benefiting both parties.

A bond is a fixed-income investment representing debt obligations on the part of the borrower. Companies issue bonds to raise capital in order to meet their short-term objectives with a pre-agreed percentage return.

Bond records begin in the year 2400 B.C., with evidence of bond transactions found on stone tablets discovered in ancient Mesopotamia. This is even more impressive when you consider written tradition didn’t begin for another 1700 years. This system of lending has been prevalent in almost every major society since, with even the Romans utilising bondsto fund their campaigns abroad. Throughout history, bonds have been a staple of the global economy, and following the 2007/08 Credit Crunch, they have emerged as a prevalent economic vehicle for alternate lending.

Banks are now far less cavalier in their lending policies, making it extremely difficult for new companies to secure capital for growth. The change in policy was designed to prevent a repeat of the events of 2007 through the consolidation of debt. One of the major new policies implemented was through the Financial Services bill which aimed to overhaul regulation in this sector. This involved the realisation of three new financial regulatory bodies, with two based within the Bank of England  and the other being what we know now as the Financial Conduct Authority (FCA).

The introduction of a bank levy has also been put into action. Whilst this has had the desired result of making banks more cautious in borrowing strategies previously perceived as ‘risky’, it has had the adverse effect of significantly discouraging bank-to-bank lending. The reaction to these tax levies have also been an increase in lending rates for customers, as a way of passing on some of the tax burden. This goes some way to explaining the difficulties individuals and businesses face when trying to secure loans, as interest rates have increased significantly.

Decreases in bank lending are certainly a global phenomenon. One of the main reasons for this decrease in lending has not simply been an increase in lending rates, but rather that banks no longer see earning interest on loans as an efficient way of making money. Some banks’ interest rates have not changed, yet their policies display a reluctance to issue loans in the first place. Record bond issuance is most definitely a by-product of such changes.

Intermediary firms such as Amio Wealth have emerged to fill the void created by adjustments to banking policy, offering the capital needed for new and innovative projects to get off the ground. The increasing popularity of buying bonds has been largely driven by the historic lows of returns on cash. According to figures from the Investment Association, September was a record month for investments, with investors putting £5.6bn into funds.

It continues a record-breaking year, with £33.7bn invested into funds in the first nine months of 2017 – the highest amount ever.

2018 has continued in similar fashion, with bond funds vastly outperforming analyst’ expectations domestically and abroad. The US has seen $36 billion already flow into bond funds in January alone, meaning U.S. retail investors are making the biggest bet on bond funds since October 2009. David Santschi, CEO of Trimtabs (a research firm)echoed these results, observing “the most remarkable flows are into bonds.” making it an exciting time for investments in bonds..

To find out more about the bonds we offer and potential investment opportunities, contact Amio Wealth Limited on +44 (0) 203 307 1250 or info@amiowealth.com.