London's credit market is drying up as UK PLC raises debt abroad

Business Times

17-06-2025

THE City of London has had to contend with a lot in recent years, from Brexit to a lack of stock listings. Its latest setback is the rapid decline of the sterling corporate bond market.
An index tracking the size of the sterling market is set to suffer one of its largest-ever drops this month. While sales have been struggling for years, the latest slump shows how even British corporate borrowers are turning their back on it – the share of their 2025 issuance in sterling is heading for the lowest in 14 years.
'It feels like it's a slightly dying market,' said Alexandra Ralph, senior fund manager at Nedgroup Investments in London. 'A lot of companies now are issuing in Europe as well and not the UK,' she said.
UK PLC is instead looking to the much deeper US dollar and euro markets – by far the world's two biggest – for its funding needs. While the pound has posted a recovery this year, sterling credit has gone from being a go-to for companies looking to raise very long-dated debt to being worth less than 4 per cent of the global total.
There is no lack of uncertainty for UK companies risking fresh debt. Britain's economic growth is flatlining, levels of corporate distress have surged in the wake of higher payroll taxes, while the country is facing potentially the biggest exodus of wealth in its recent history.
'There was a bit of fear that the UK could go into recession over the course of this year,' Nicolas Trindade, who runs a short-duration sterling credit fund at AXA Investment Managers, told reporters at a recent roundtable. It may take a better macro outlook for the sterling market to boost activity, he said.
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This may take time to materialise. Global trade tensions and the impact of an increase in employers' so-called national insurance contributions have set the stage for slow economic growth, indicated a report by Ana Andrade, economist at Bloomberg Economics. Gross domestic product dropped 0.3 per cent in April, the biggest monthly contraction since 2023.
British corporate treasurers are voting with their feet. So far this year, less than a fifth of all recorded issuance from UK-based firms has been in sterling, the lowest since 2011, based on data compiled by Bloomberg. Dollar and euro bond sales accounted for a combined 77 per cent.
More than 60 British companies and financial institutions have raised debt in currencies other than the pound this year, based on data compiled by Bloomberg. Gatwick Funding is in the market on Tuesday (Jun 17) for its second euro bond sale following a debut in October.
Other recent newcomers include Manchester Airport Group Funding and London Power Networks, both of which sold a euro-denominated bond for the first time, having spent years raising debt in sterling. A Manchester Airport representative declined to comment. Bloomberg News has reached out to London Power Networks' parent group for comment.
Meanwhile, the proportion of sterling in the global credit market gauge has halved from nearly 8 per cent in 2009. While the City of London did not create the corporate bond market – that accolade goes to ancient Mesopotamia, medieval Italian city states or the Dutch East India Company, depending on how you look at it – Britain's early industrialisation made it a major player.
Sterling remains the third-biggest pocket in the global high-grade credit market, even in its shrunken state. However, there is now a gap of less than a percentage point between the pound's share and that of the fourth most common currency – the Canadian dollar – based on Bloomberg indices. Back in 2009, sterling debt outweighed Canadian dollar bonds on the index by almost three times.
It is not just issuers abandoning the market. UK investors have also been increasingly willing to look beyond sterling credit for yield.
Colin Finlayson, an Edinburgh-based portfolio manager at Aegon Asset Management, can recount the evolution of the market since he joined the investment industry 25 years ago. At first, it was all UK government bonds for pension funds and insurers, until they started adding sterling credit to boost yields. Then they realised buying foreign bonds and hedging the currency risk provided even better returns.
'People have woken up to the idea that you can increase your opportunity set and achieve the same if not better outcome by investing in offshore markets,' he said. 'I think it's unlikely we would ever launch another sterling corporate bond fund.' BLOOMBERG