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UniCredit bankers explore the rise of Germany’s Schuldschein market in Investment Europe

UnicreditsqrBoth investor interest and corporate issue sizes in Germany’s famous private debt market – the Schuldschein market – are escalating at historic rates, say Jörg Stührwohldt and Rudolf Bayer, managing directors at UniCredit, writing in Investment Europe. Indeed, in the first 10 months of 2016, volumes have soared to more than €20bn, already touching record annual levels with two months left in the year.

In large part, this phenomenon has been driven by increased investor demand. With macroeconomic volatility and negative interest rates squeezing margins in the bond market, the Schuldschein offers an attractive means of diversifying investment portfolios – not least because its contracts, unlike bond contracts, protect against the impact of negative rates, through the widespread inclusion of zero floor language. High investor demand, has in turn, increased the attraction of the Schuldschein market for issuers. In fact, corporates are reacting by carrying out ever larger issues, with ticket sizes even exceeding €1bn in some cases, as they look to seize the opportunity to borrow money at favourable pricing.

In 2016, the market is booming not just in terms of volumes, but also in terms of its international reach. Around a quarter of issuers now hail from outside the classic regions of Germany and Austria,  while much of the new demand is coming from Asian banks as well as international institutional investors, tempted by larger deals with higher spreads.

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