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S&P Global — 12, July 2024
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
The bond market is old school. While investors such as Bill Gross introduced active trading in bond markets decades ago, the way bonds are issued and traded has remained stubbornly analog. However, a digital bonds market has formed over the past few years and reached into the billions of dollars seemingly overnight. In a global bond market with an estimated value well over $100 trillion, this issuance can feel like a rounding error several places right of the decimal. But the sudden growth of the market and the broad base of market participants and issuers merits attention. To grow beyond a niche market of early adopters, the digital bond market must solve existing technical, financial and regulatory issues. Digital bonds are distinct from tokenized treasuries, which are digital tokens created on a blockchain that are backed by traditional treasury holdings.
S&P Global Ratings has been analyzing the development of the digital bond market since its inception. The promise of digital bonds is that they could offer additional efficiency and security for issuers using blockchain technologies. In addition, bond markets could be opened to new investors and issuers. Retail investors could use the fractionalization of digital bonds, where the bond instrument is split into smaller investable units. Small and medium-sized businesses could also participate in broadly syndicated markets since digital issuance would be simplified and streamlined.
Challenges abound. Most of the digital bonds issued to date have made use of backup systems, including parallel databases and the ability of digital bonds to revert to analog equivalents should the platform on which they were issued fail. While S&P Global Ratings has rated most of the digital bonds that were issued, those ratings depended on the reassurance of these backup systems. It would be most accurate to say that these bonds were digital and traditional at the same time, acting more as a proof of concept.
From a regulatory perspective, the market for digital bonds is in uncharted territory. A truly digital bond would require evolving regulations to protect investors and issuers. Today’s digital bonds also depend on traditional finance for payments and settlement and off-blockchain duplicate records of who holds what. A truly digital bond would have to solve currency issues related to stablecoin payments and use the immutability of the blockchain to establish ownership.
While these backups, duplications and workarounds might make digital bonds appear impractical, a quick look at the players involved in this growing market indicates that it must be taken seriously. Digital bonds have been issued on private blockchains via platforms from traditional intermediaries, including Goldman Sachs, HSBC Orion and Onyx by J.P. Morgan. Issuers include Siemens, the World Bank, the European Investment Bank, and the governments of Hong Kong and Colombia.
Today is Friday, July 12, 2024, and here is today’s essential intelligence.
A growing market share of BEVs and PHEVs will increase credit risk in auto ABS transactions. As BEVs and PHEVs currently depreciate more than ICE vehicles and HEVs, S&P Global Ratings has adjusted its recovery and residual value assumptions in securitized pools with more than 10% exposure to BEVs, and 30% and 20% exposure to PHEVs in European and North American transactions, respectively.
—Read the article from S&P Global Ratings
The first six months of 2024 were the busiest half-year since 2022 for worldwide M&A transactions larger than $10 billion, despite a slowdown in May and June. There were 17 deals valued over $10 billion announced during the period, with a combined transaction value of $304.58 billion. By both deal count and transaction value it was the busiest period for $10 billion-plus deals since the first half of 2022, which had 18 large deals worth $486.56 billion.
—Read the article from S&P Global Market Intelligence
Parliamentary elections that failed to produce a clear winner have left France facing increased political uncertainty that could translate into a more volatile business environment. Despite that, S&P Global Ratings maintains its expectation that French banks' profitability will improve, albeit more slowly than previously anticipated.
—Read the article from S&P Global Ratings
Bunker demand for very low sulfur fuel oil at Indian ports remained mixed in June with the arrival of Southwest monsoon. West-coast India, which makes up for most of the bunker demand in the country saw a good flow of inquiries throughout June supported by increased availability of product, traders said. "The demand across the Indian bunker market is strong, and availability has returned to normal levels across all ports," a Mumbai-based trader said.
—Read the article from S&P Global Commodity Insights
Electricity generation from wind and solar — negligible two decades ago — broke records in the EU last year. Combined, these renewable sources increased by 90 terawatt hours (TWh) to 721 TWh, more than the size of power demand in Belgium, Europe's 10th largest market. They represented 27% of the generation mix in 2023, up from 23%, enabling further cuts in greenhouse gas emissions, especially from coal. This was helped by a 3.4% drop in power demand following a 3.8% decline in 2022, according to the Agency for the Cooperation of Energy Regulators, to a 15-year low.
—Read the article from S&P Global Ratings
Discover the resurgence of the metaverse and its impact on the industrial sector. Join analysts Neil Barbour and Ian Hughes on the Next in Tech podcast as they share their insights from the 15th anniversary of Augmented World Expo USA. Hear how augmented reality tools are transforming the way we interact with technology and which advancements in semiconductors, remote rendering and cloud streaming are driving the adoption of the metaverse in retail applications.
—Listen and subsctibe to the podcast from S&P Global Market Intelligence
As we look towards the second half of 2024, we invite you to join us on Wednesday, July 17 as we look back — and forward — at the key sustainability trends impacting mid-year economic outlooks.
—Register for the webinar from S&P Global Sustainable1