There are signs that the currently healthy state of corporate bond issuance in sterling is encouraging non-UK domiciled companies to issue sterling-denominated debt instruments.

It’s been the most active start to the year in the last decade for investment-grade £ issuance from non-financial companies. Higher yields offered by corporate bonds, in comparison to gilts, and the potential for pension schemes to prepare for sales to insurers are key drivers also; with a greater focus now being placed on having the right assets for buyout. 

Rises in UK interest rates have led to more fully funded defined benefit pension schemes, making offloading liabilities to insurance companies a viable option.  Legal & General’s Pension Risk Transfer Monitor reported a record-breaking 2023 for the UK market, with an estimated £50 billion of pension liabilities secured with insurers in the UK; marked by a series of landmark bulk-annuity transactions.

Andrew Kail, CEO, Legal and General Retirement Institutional, acknowledges the success of the UK bulk-annuities market in 2023: “The growth in both the UK and US markets is being driven by dramatically improved pension scheme funding levels. In the context of this increasing demand, we’re innovating to expand the de-risking toolkit for pension trustees and sponsors.”

Regulatory changes to solvency rules following the 2022 gilts crisis under the short-lived Liz Truss government, and a focus on de-risking investment strategies further contribute to this trend. Sterling-denominated corporate bonds remain a low-risk option for investors, whilst still offering attractive returns and sterling interest rate protection. Consequently, Willis Towers Watson predicts that bulk-annuity deals could reach £60 billion this year. Jenny Neale, Director within Willis Towers Watson’s pensions transactions team weighs in: “Overall given the stepped change in funding position for many... 2024 has the potential to be the busiest year ever in the de-risking markets.”

Given the increased demand for corporate bonds, and an estimated £1.4 trillion of respective defined benefit pension scheme assets still sitting on company balance sheets, (According to Legal and General), the sterling debt issuance is likely to continue to prosper for years to come.