Bond growth slows to pre-crisis levels

The global bond market’s expansion is slowing for the first time since 2005 as governments withdraw stimulus and credit conditions improve.

The bond market grew 9.9 per cent last year to $49.7 trillion, down from an 18.5 per cent rise in 2009 when governments provided debt guarantees during the worst financial crisis since the Great Depression, according to Bank of America Merrill Lynch. The 10-year cumulative annual growth rate is 9.8 per cent.

Slower growth may boost demand for borrowers from the US government to junk-rated companies. Relative yields on corporate debt match the lowest since May and average prices have climbed 21 per cent from the record low in October 2008. Bonds returned 4.9 per cent last year and 5.3 per cent in 2009, according to Bank of America Merrill Lynch’s Global Broad Market Index.

“Less supply boosts prices and narrows yield spreads,” said Anthony Valeri, market strategist with LPL Financial Corp. in San Diego, which oversees $293 billion. “All of that is positive for bond investors.”

The last time growth decelerated was in 2005, when it expanded 6.8 per cent from 8 per cent the prior year, Bank of America Merrill Lynch analyst Phil Galdi wrote in a report dated January 12. This slowdown was greatest in quasi- and foreign government bonds, including corporate debt issued under liquidity guarantee programs. Emerging-market debt was the only category that grew at a faster pace.