Europe

The death knell has sounded for Libor and the ubiquitous benchmark is entering its last year of existence. But while some market segments have set their houses in order for the change, the loan market has barely begun. Europe’s bankers expect an onslaught of borrowers switching their documents to new rates at the same time. Mike Turner reports

The shock of coronavirus has changed markets — and society — forever. Toby Fildes picks out the key themes that will emerge from that upheaval in 2021. As 2020 has reminded everyone, the unexpected will happen — but markets can cope.

Governments have had little choice but to load up on debt to save their economies. With the crucial support of low interest rates and vast quantitative easing programmes, there is little immediate threat to debt sustainability. But as Jasper Cox reports, nothing lasts forever.

Public sector borrowing has been the backbone of the global economy’s response to the unprecedented economic and humanitarian disaster of Covid-19. Sovereigns, supranationals, agencies and regions rose to the new challenge, displaying more ingenuity and ambition than ever in their selection of market, format, currency and tenor and producing some truly spectacular deals. Borrowers throughout the SSA class had to adjust their funding programmes after the first quarter — many to double or even treble their requirements. Contending with inflated funding needs, as well as a market beset by severe dislocations, required unusual flexibility and creativity. Amid all that, SSA borrowers managed not simply to raise the sums required, but to push forward market attitudes to SRI debt and to new risk-free-rates products.

Aside from the tragedy of lives lost, the impact of the pandemic on jobs, production and tax receipts has been cataclysmic. Step forward the sovereign debt markets, ably supported by central banks’ quantitative easing programmes, which have enabled governments to shoulder the heavy load. Lewis McLellan reports.

The EU began its evolution in 2020 in becoming one of the largest issuers in the capital markets. While it was plain sailing for the first few deals, there are bigger tests ahead in 2021, with the EU’s borrowing set to balloon even further in size. Burhan Khadbai reports.

Bank capital has gone back under the microscope during the coronavirus pandemic, with policymakers asking themselves whether the Basel III rules can work as intended. Tyler Davies reports.

Bank financing deals are expected to be on the low side in 2021, thanks to the provision of cheap, easily accessible central bank funding and high deposit inflows. Even so, regulatory funding is requisite and covered bonds will still provide an imperative source of long term funding, writes Bill Thornhill.

No two crises are the same, and to expect financial instruments to behave in the same way in each one would be unfair and naïve. But having proved their mettle in the 2008 crisis, the Schuldschein and USPP markets seemed well placed to thrive in 2020. Not so. Instead, it was the turn of direct lending to shine. Silas Brown reports.

Having lagged behind bonds in embracing the green agenda, the primary equity capital market came into its own in 2020. With investors more engaged in sustainability and fighting climate change, there are hopes that 2021 will be even greener. Sam Kerr and Aidan Gregory report.

Convertible bonds have thrived during the pandemic, as companies rushed to raise capital to shore up their damaged balance sheets or to take advantage of the opportunities for growth that the crisis has unexpectedly created. Meanwhile, investors who bought in have been rewarded with strong returns. More of the same is expected in 2021. Aidan Gregory reports

European left-wing politicians have called on the European Central Bank to cancel government bonds it has bought, to help countries suffering in the aftermath of the coronavirus crisis. But analysts believe this move would create a lot of political pain and little economic gain.