LONDON — Issuance volumes in Europe, Middle East and Africa (EMEA) leveraged finance markets dipped but remained very solid in February at $20.6 billion after a record-breaking January. But issuance could slow post-Easter as monetary policy and political factors will likely increase volatility, says Moody’s Investors Service (Moody’s) in an update to the markets published over the weekend.
Leveraged loans again made up the lion’s share of activity, at 67% or $13.9 billion, against 33% or $6.7 billion in high yield bond transactions in February. However, both high-yield bond and leveraged loan volumes were down compared with January, by 18% and 32%, respectively. Nevertheless, markets remain highly active with increasing activity at lower rating levels also signaling increasing demand for higher risk transactions.
“Despite the continuing positive trend, leveraged finance markets will remain sensitive to monetary policies, including interest rate changes and quantitative easing,” explained Peter Firth, a Moody’s Associate Managing Director at Moody’s. “Upcoming elections in Europe and the start of the UK’s exit process from the EU in coming weeks will also compound political uncertainties and potentially slow leveraged finance market issuance.”
While the leveraged finance market has remained resilient over the past months, including through the US elections and the referendum in Italy in the last quarter of 2016, the combined impact of monetary policy and political factors increases the likelihood of greater market volatility than experienced in the first two months of 2017. — SG