2018 was characterized by a loose monetary policy and by the stabilization of economic data from the eurozone. There are increasing signs that inflation could gather speed in the medium term.
In the euro area, however, the European Central Bank’s decision to continue with its asset purchase program, albeit on a smaller scale, up until September 2018 resulted in a stable interest rate environment overall. In June 2018, the ECB President announced that the asset purchase program would not be discontinued until the turn of the year 2018/2019. The ECB will, however, continue to reinvest payments from maturing bonds in further asset purchases even after this date. In September 2018, the ECB had voted to reduce its asset purchases made after September 2018 to a volume of € 15 billion a month, confirming that interest rates would remain at the current low level until mid-2019 at the very least.
The yield on ten-year German Federal bonds fluctuated in 2018, but without any sustained trend towards higher market interest rates. Increased macroeconomic risks, such as global trade conflicts and the uncertainty surrounding Brexit, bolstered the demand for low-risk bonds.
The Federal Reserve Bank (Fed), the world’s largest central bank, made radical changes to its monetary policy course in 2018. It is no longer investing in bonds, meaning that it is not supplying the financial markets with any additional liquidity. On the contrary, bonds purchased by the Fed are even being sold again.
One of the World’s Biggest Capital Market Issuers
The rating agency Standard & Poor’s has assigned Vonovia a long-term corporate credit rating of BBB+ with a stable outlook and a short-term credit rating of A-2. Our first-class credit rating continues to give us unrestricted access to the international capital markets, on which we were able to establish ourselves within a short period of time. With an average issue volume of € 3.0 billion a year between 2015 and 2018, we rank 14th out of the world’s top 15 EUR investment grade issuers based on analyses performed by Dealogic.
Successful Financing Measures in 2018
Thanks to the positive economic environment and the expansionary monetary policy pursued by a large number of countries, the global demand for investment among investors remained high in the first half of the year. As of the middle of the second half of the year, however, the announcement made by the European Central Bank on the gradual reduction of its asset purchase program, the potential for trade wars and the tension between the EU and Italy had a negative impact on risk premiums on the bond markets. Vonovia’s bonds did not escape this trend unscathed.
In 2018, Vonovia placed an issue volume of € 3.6 billion in total on the primary market (2017: € 2.0 billion) at volume-weighted average interest cost of 1.45% (2017: 0.91% p.a.). The average maturity of the bonds we issued was 9.3 years in 2018 (2017: 6.3 years). This means that we were able to make active use of the attractive market environment in 2018 in order to extend our average maturity and further smoothen our maturity profile.
In order to increase its flexibility as far as refinancing strategies are concerned, Vonovia increased its commercial paper program by € 500 million to an issue volume of up to € 1.0 billion in 2018. The working capital facility was also increased by € 500 million to € 1 billion in 2018. Details on the financing portfolio can be found in the Notes to the consolidated financial statements.