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The past, present and future of debt capital markets

November 2023

Debt capital markets (DCM) are a key tool in the armoury of businesses looking to raise money through debt securities such as corporate bonds, but as with everything in the world of corporate and investment banking, the landscape is shifting beneath our feet. 

In 2022, the world’s total DCM issuance was $6.3tn, with the record to date being 2020, which was closer to $9.5tn. 

Not insignificant sums of money, but from where did debt capital markets originate, and in what direction do we expect them to go as we approach the second quarter of the 21st century? 

The history of debt capital markets 

You can go all the way back to 2400 BCE for the first recorded bonds – in existence long before stocks – which originated in modern-day Iraq and were written on clay tablets. 

However, it’s the 17th century where the idea of selling debt truly took off, as the Bank of England, one of the world’s oldest central banks, started issuing government bonds. Indeed, this also marks the birth of Gilt markets, courtesy of these particular certificates coming with gilded edges. 

Debt markets gained further traction in the 1700s, as a new covered bond known as the German Pfandbrief – a dual resource, asset-backed security – came into existence with noble landowners raising money against both their own credit and the value of their estates as a security. 

The next major revolution in the world of debt issuance came in July 1963, when the Autostrade issue for the Italian motorway network brought the first ‘Eurobond’ to the market, meaning that a multinational syndicate composed of financial institutions, for the first time, actively underwrote and distributed a transaction in a major currency – at the time, the US dollar. 

Since the 1960s, we have seen the market develop into a truly global animal. The present-day internal debt capital markets are comprised of bond dealer associations, clearinghouses, and exchanges, to name a few, while we’ve also seen the creation of single currencies and a multitude of investment banks, brokers, dealers and investors.  

Indeed, Santander CIB has a strong presence in many markets, acting as a structurer and underwriter of transactions, distributing paper across the globe and making secondary markets in a variety of subsets of asset classes that exist for Corporate, Financial Institution, Sovereign, Supranational and Agency clients. 

While Santander CIB’s place in the DCM ecosystem is a strong one, it’s never been more crucial to ensure fingers remain on the pulse of cutting-edge developments in the world of debt issuance. 

Have DCMs sufficiently modernised? 

Despite many advances in the trading of bonds in the secondary market over the years – such as the increase in the number of venues, as well as progressive automation – there has been surprisingly modest progress in the way new bond issues are executed, despite the significant technological steps made over the period. 

Right until the mid-90s, orderbooks were collated with pen and paper on trade blotters, and while spreadsheets sped matters up, the process overall was still an overwhelmingly manual one. 

Then along came online, shared order book systems, which brings things to the present day. This system allows salespeople, at all banks or institutions involved within the transaction, to enter orders into new issue order books once deals are announced. 

These systems also have the capability to automatically find and clean duplicate orders, while fixing any inconsistencies that arise, all but avoiding the need for long reconciliation calls, enabling more time to be spent on clients’ needs and less on timely administration. 

Conor Hennebry, global head of Corporate Debt at Santander CIB, comments: “our origination platform has grown considerably over recent years, and this is in part down to the investment in technology and our commitment to digital solutions.”

Santander’s place in the DCM ecosystem 

Santander CIB is committed to playing a key role in the in industry’s ongoing electronification, and accelerating the transition towards a more complete and coherent process, where investors can use their own, in-house order management systems to place orders and receive allocations. 

The deal execution world is complex and requires conjoined efforts from many of the key players in the DCM sphere, including Santander, in order to make the operation more efficient, particularly in relation to any pre- and post-launch processes such as pitching, provision of legal documents and settlements. 

Furthermore, Santander has been at the forefront of using blockchain for issuance, where in 2019 it launched the first end-to-end blockchain bond, worth $20 million. 

At the time, José M Linares, SEVP and Global head of Santander CIB said: “our clients are increasingly demanding the best thinking and technology in how we serve them in their capital-raising efforts. This blockchain-issued bond puts Santander at the forefront of capital markets innovation and demonstrates to clients that we are the best partner to support them on their digital journey.”

John Whelan, Managing Director – Crypto & Digital Assets at Santander CIB says: “the entire securities lifecycle has scope for digitization. At some point we can imagine where all securities will be digital and programmable. At Santander we are pleased to be playing our part with our clients in this extraordinarily complex industry transformation."

“It’s been a long time coming, but I truly believe we are about to experience huge advances in the efficiency of the full lifecycle of bond execution with the help of technology” adds Stuart Montgomerie, Managing Director – global head of Syndicate at Santander CIB. 

“We are passionate about playing our part to make this happen, working closely with our issuer and investor clients to ensure Santander is driving these changes for the benefit of all market participants as well as the global economy.”