The Rise of Bond Financing in Europe: Five Facts about New and Small Issuers

Abstract

Using newly available micro-data on public and private firms, this paper documents five facts about the the rise of bond financing in the euro area through the lens of new and small issuers. (1) Recent new issuers are typically small, private, and unrated; (2) bond spreads of unrated issuers are around the investment-grade threshold; (3) holdings of traditional `buy-and-hold' bond investors are small for unrated and smaller issuers, while financial intermediaries and households are large investors; (4) during the March 2020 turmoil, financial intermediaries were as "safe hands" investors as insurers but households were as flighty as mutual funds; (5) the subsequent bond issuance wave was restricted to large firms, with other issuers returning to the loan market. These facts imply that these issuers are largely disconnected from the aggregate bond market and still significantly dependent on intermediaries.

Keywords: Corporate bond market, debt structure, disintermediation, financial fragility, ECB, monetary policy, quantitative easing, bond investors

JEL Classification: G21, G32, E44