Outstanding Value of UK Bonds up 5 per cent as Government Issuance Grows

• Nominal value of bonds outstanding in UK up 5% in 2009 to £3,353bn
• UK Government net debt issuance up over two-thirds to £211bn
• Amounts outstanding in global bond markets up 10% to $91 trillion
• Credit downgrades in some Euro-area countries result in widening of bond yield spreads between these countries and other EU members
• Corporate bond market in Europe to expand as companies diversify sources of funding

The nominal value of bonds outstanding of UK-based issuers totalled a record £3,353bn at the end of 2009, up 5% on the previous year. The figures are revealed today in the Bond Markets 2010 report issued by TheCityUK, a new independent membership body, promoting the UK financial and related professional services industry.

UK Government net debt issuance, which was below £50bn in the years prior to the economic crisis, increased to £211bn in the financial year 2009/10 and is likely to range between £100bn and £150bn over the next three years. The outstanding value of UK public sector net debt grew by 20% in 2009/10 to £890bn. Nearly £120bn of this was from financial sector interventions. Demand for UK bonds has been underpinned by the Bank of England's quantitative easing programme.

The outstanding volume of international bonds in the UK, which account for 70% of the UK bond market, increased marginally in 2009 to £2,373bn, after nearly doubling in value in the two previous years. London remains the leading centre for international bond trading with an estimated 70% of secondary market turnover.

Global trends: The report also reveals that overall amounts outstanding on the global bond market increased by 10% in 2009 to a record $91 trillion. Most of this was in domestic bonds with the US as the largest market accounting for 34% of the value outstanding, followed by Japan 13%. The UK's share was 6%. Concerns about the ability of some countries to continue to finance and service their debt have come to the forefront since late 2009. This was partly a result of large public debt taken on by governments to reverse the economic downturn and finance bank bailouts. The downgrades of Greece's credit rating, along with subsequent cuts in Ireland, Spain and Portugal have added to the negative sentiment. This has resulted in the tightening of market conditions for government refinancing in these countries.

Marko Maslakovic, Senior Manager, Economic Research at TheCityUK, said: "The corporate bond market began 2010 at a strong pace following on from the rally in 2009 which drove borrowing costs sharply lower. Issuance has however stalled due to mounting concerns over public debt problems in some Euro area countries. Europe is nevertheless moving towards a more US-style bond market as companies there increasingly diversify away from reliance on banks for funding."

Bond Markets 2010 report