Net capital issuance (gross issues less repayments) in the UK has been relatively bumpy since the financial crisis as deleveraging in the financial sector has resulted in prolonged negative net issuance. However, net issuance has turned positive since the beginning of 2018 and has picked up sharply as these deleveraging pressures have subsided. This has been driven in large part by a recovery in bond issuance (equity has been comparatively stable). Moreover, it is the private non-financial sector that is leading the charge.
Although there is no breakdown on net bond issuance by industry, there is data available on total net capital issuance by industry. This shows that the biggest net issuer has been the real-estate sector, while capital raising has been comparatively weak for manufacturing. Given that real-estate investment is relatively unproductive (certainly compared to manufacturing) and requires
continued increases in property and rental prices to cover the cost of debt, the increase in capital issuance (which is likely to be in the form of debt) provides further reason to be cautious the UK
real-estate sector. We will discuss UK homebuilders more in our monthly report out later this week.
(Click on image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception