Europe's corporate bond market risks becoming a victim of its own success in the year ahead as reduced issuance by cash-rich treasurers offers slim pickings for investors accustomed to the double-digit returns this year.
Credit Agricole is predicting a 37 per cent slump in corporate bond issuance, Morgan Stanley forecasts a 15 per cent drop, and Societe Generale expects a 6 per cent decline after the busiest year since the start of Europe's credit crisis.
Investors will earn a third of the 12.5 per cent they received for holding investment-grade debt this year, analysts at Societe Generale and Royal Bank of Scotland estimate.
Sales of corporate securities soared to US$383 billion this year as companies took advantage of record-low yields to sell bonds to investors seeking a haven from the euro zone's fiscal turmoil.
Issuance is set to slow as company treasurers wary of a worsening debt crisis accumulated €579 billion (HK$5.95 trillion) of cash, the most in at least a decade, according to data.
"It's not the normal correlation, and we can't expect it to repeat itself," said Orjan Pettersson, a Stockholm-based fund manager at SEB Asset Management.