The latest version of the Bank for International Settlements’ quarterly review finds that international debt issuance dropped in the second quarter, led by the financial sector.

The BIS said that activity in the primary market for international debt securities fell sharply in the second quarter, with completed gross issuance dropping by 23% to US$1,664 billion, the lowest level since late 2005, and “well below the levels seen during the financial crisis.”

“With stable repayments, net issuance dropped by 83% to $99 billion, the lowest since the late 1990s,” it said. “Financial institutions took the brunt of the hit. They recorded net redemptions of US$55 billion, after net issues of US$292 billion in the first three months of the year.”

Additionally, the BIS said that growth in activity on the derivatives exchanges also fell somewhat in the quarter, compared to the buoyant first quarter.

“Turnover measured by notional amounts of futures and options on interest rates, stock price indices and foreign exchange increased by 8% quarter on quarter to US$555 trillion between April and June, compared to a 16% rise in the previous three months,” it reported. “The relatively modest increase reflected divergent developments in the United States and Europe.”

“The period from early June to late August saw investors shift their attention from the funding problems of European sovereigns to the diverse global growth outlook and the implications for asset prices,” it said. “Starting in late July, increased evidence of economic weakness in the United States led to lower inflation expectations and falling bond yields. During August, the decline in yields accelerated and equity prices fell as evidence of slower growth in a number of advanced economies mounted.”

The BIS also reported that the contraction of banks’ international balance sheets that began in the fourth quarter of 2008 came to an end during the first three months of 2010. “Led by sizeable increases in international claims on residents of the United Kingdom and the United States, the turnaround was also boosted by continued acceleration in cross-border claims on Asia-Pacific and Latin America and the Caribbean,” it noted.

IE