Increased corporate bond activity attracts interest from abroad

4.11.2020

In its latest issue, Viðskiptablaðið business journal interviewed Haraldur Thordarson, Fossar Markets’ CEO, enquiring, among other things, about the conditions on the bond market.

Thordarson pointed out that the banks’ increased focus on loans to individuals, and declining emphasis on corporate loans create incentives for companies to seek alternative financing options, making the corporate bond market an attractive option.

“All the fundamentals are in place for the corporate bond market to flourish. Because of this, market funding can play a bigger part in the funding of corporates, facilitated by specialised financial intermediaries such as Fossar Markets. The development is positive because the corporate bond market has been relatively dormant since 2008,” Thordarson said in Viðskiptablaðið. He added that since the financial crisis, the incentive for companies to seek financing from the corporate bond market has been lacking.

Thordarson pointed out that the corporate bond market is a good option for pension funds and other institutional investors. “Lower interest rates and the banks’ increased emphasis on loans to individuals has resulted in cash inflows at local pension funds via mortgage prepayments. When you add the net inflow they already receive in the form of premiums, the pressure on them to deploy capital is building up each month. As the banks’ interest in corporate lending has declined it would be very natural for pension funds to seize the opportunity and direct their capital increasingly to domestic companies through the corporate bond market,” he said.

Thordarson also pointed out that as of late, the corporate bond market has become more active. “Last year we placed ISK 60 billion for our customers, and year to date we have placed over ISK 50 billion. The activity in the primary market is on the rise. The demand is there, and I believe the corporate bond market will continue to grow.”

Thordarson also said there was an increased emphasis on sustainability. “It is still early days for this development, and investors are increasingly aware of these factors. The development started with green bonds and has also been shifting to other bonds that meet international requirements with a focus on environmental, social, and corporate governance (ESG). This, I believe, will also support the corporate bond market’s growth.”

In the paper, Thordarson also pointed out that an active corporate bond market can attract foreign investors to Iceland. “Since 2008, the most active part of the bond market has been government bonds and, increasingly, covered bonds. A more active corporate bond market could be an interesting development for international investors, which would, in turn, broaden the group of investors financing Icelandic companies.”