AFME has published a new research note on the “Impact of COVID-19 on European Capital Markets: Market Update”.

The purpose of this report is to provide an update on how European capital markets have performed during the COVID-19 outbreak. This report follows a first publication launched in mid-April which assessed the initial impact of COVID-19 on Europe’s capital markets.

Key findings:

• Issuance levels of investment grade (IG) bonds have reached record weekly, monthly and quarterly volumes. Q2 2020 saw the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe totalling EUR 225bn in proceeds. The increase has been largely driven by Central Bank support.
   
• An ESG recovery. European social, sustainable, and green bond issuance reached EUR 55.2bn in Q2 2020, the highest quarterly issuance volume to date. The increase was predominantly driven by social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn.
   
• European market liquidity has deteriorated over the last few months. In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels. 
   
• Follow on equity offerings have continued to support the recovery as companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017.
   
• After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds from 24 deals. Issuance volumes continue subdued compared to pre-COVID levels.
   
• European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchanges which totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of total SME funding compared to bank lending.
   
• Record volumes of bank lending. Euro area statistics have shown a marked increase in corporate net lending and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued  by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients.
   

The report follows from AFME’s research on the initial impact of COVID-19 on Europe’s capital markets and summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus.

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