By Simon Miller

The primary market for international debt securities increase in Q1 2011 according to the latest Bank for International Settlements (BIS) figures.

In its latest quarterly review, BIS said that completed gross issuance rose by 20% quarter-on- quarter to $2,127bn (£1,294bn) which “reflecting a seasonal pickup as well as some increase in the underlying market activity reflecting generally benign market conditions”. With somewhat higher repayments, net issuance picked up to $487bn from $299bn in the previous quarter.

BIS said the rise in market activity was largely due to stronger borrowing by residents of developed European economies, where net issuance rebounded to $265bn.

Although this was far higher than the $4bn raised in the fourth quarter of 2010, it was still short of the levels seen before the financial crisis.

Net issuance by residents of other developed economies shrank to $106bn, from $235bn in the previous three months. Robust net borrowing activity was observed in EMEs, residents of which raised $51bn net of repayments. International financial institutions tapped the market to raise $62bn, the highest amount ever.

The growth was led by financial borrowers who accounted for the largest share of net issues ($215bn), followed by non-financial corporate borrowers ($135bn) and governments ($76bn).

“From a longer perspective, net issuance by financial institutions seems to have stabilised after the sharply lower and highly volatile issuance activity in the aftermath of the financial crisis of 2007–08,” the report said.

Net issuance by financial institutions resident in EMEs rebounded sharply from its lows during the crisis and, at $21bn in the first quarter of 2011, has almost regained the level of $23bn last seen in the fourth quarter of 2006.

According to BIS, financial institutions in developed European economies expanded their funding via international debt securities. Completed gross issuance by these institutions increased by 28%. Net issuance stood at $171bn, after net repayments of $33bn in Q4 of 2010. Financial institutions located in France raised $66bn, $40bn in the UK and $34bn in the Netherlands.

Spanish ($30bn) and Italian financial institutions ($19bn) responded to more favourable market conditions by raising more funds in the international debt securities market.

High redemptions by Irish financial institutions ($131bn) more than offset gross issuance of $61bn, resulting in net repayments amounting to $70bn, “thus continuing a trend towards net repayments over the previous year”. Greek financial institutions borrowed $3bn, an amount well below their average net borrowing over the past year.

Covered bond markets witnessed strong issuance activity during the first quarter of 2011. Estimated net issuance rose to $64bn, the largest amount since the fourth quarter of 2008.

BIS added: “However, there was some dispersion across countries: French, Italian and Spanish institutions raised $26bn, $18bn and $10bn respectively, whereas German institutions made net repayments of covered bonds worth $27bn."

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