4.5 Particular Remarks on Corporate Bonds 113they have an impact on European bond markets. Fifth, the nature of bonds also in-
fluences covenants and other terms.
The bond market. Bonds can be denominated in any currency and issued by
various kinds of entities.
The most important market for euro-denominated bonds is that for bonds issued
by public authorities. In 1999, public authorities were behind 57% of all euro-
denominated debt securities issued by euro area entities. The share of debt securi-
ties issued by public authorities was slowly decreasing between 1999 and 2006.
Slightly less than half of all euro-denominated debt securities were issued by pub-
lic authorities in 2006.^121 The share of private sector issuers has been increasing.
Although much of the money lent by banks is raised through the taking of de-
posits, monetary financial institutions (MFIs) are the second largest group of issu-
ers of debt securities in the euro area economy, just behind the general govern-
ment sector.^122 The bulk of the debt securities issued by MFIs – accounting for
nearly 90% of total outstanding – are notes and bonds that have a long original
maturity.^123
Between 1999 and 2006, the fastest growing segment by far comprised debt se-
curities issued by non-MFI financial institutions. Non-MFI financial institutions
comprise traditional financial institutions like insurance corporations and pension
funds as well as other financial institutions like investment funds, financing arms
of industrial corporations, financing arms of MFIs, and SPVs set up for asset secu-
ritisation. The high growth rates for this market segment might partly reflect the
strong trend towards securitisation through SPVs.^124 In 2006, debt securities issued
by MFIs and by non-MFI financial institutions represented almost half of all is-
sues.
In contrast, non-financial corporations still appear to be relatively inactive as
issuers of debt securities. In continental Europe, there is a preference to raise
funds through bank loans.^125 Debt securities issued by non-financial corporations
accounted for 14.5% of all their debt in 2002 and for 15.3% in 2006. However,
many non-financial corporations issue debt securities through a financial ancillary
(typically a wholly-owned subsidiary) that itself is a non-MFI financial institu-
tions. In 2006, outstanding amounts of short-term debt securities issued by non-
financial corporations accounted for 17% of all debt securities issued by non-
financial corporations. Short-term securities nevertheless are more important for
non-financial corporations than for public sector issuers and MFIs.^126
While the markets for euro-denominated bonds and related derivatives are ma-
ture, securitisation markets and markets for credit derivatives are young and inno-
(^121) ECB, The euro bonds and derivatives markets (June 2007) pp 10–11.
(^122) Ibid, p 16.
(^123) Ibid, p 16.
(^124) Ibid, p 10.
(^125) Ibid, pp 11–12.
(^126) Ibid, p 27.