Euro Credit Supply: 2023 Supply forecasts

Corporate supply forecast at €275bn in 2023

Corporate supply was just €1bn in December as the markets closed up early. Supply for 2022 totalled €258bn. This was slightly above what we previously expected, after a decent supply in November as a more attractive funding window presented itself. Supply has been rather significant in the opening days of this year. We expect a small increase in supply in 2023, although still on the low side compared to recent years. We forecast €275bn for the year, pencilling in the second-lowest yearly volume since 2015. 

We expect a small increase in supply but overall low supply due to much higher funding costs, significant levels of cash on balance sheets due to substantial pre-funding done in previous years, deleveraging and an insignificant volume of assets and liability exercises expected. In addition, we expect low corporate hybrid and Reverse Yankee supply in 2023. As a counterbalance, and why we expect a small increase, the cash buffer may decrease due to inflationary and recessionary pressures. We expect the disintermediation trend to return as we see an increase in bond supply after a year of very low bond supply relative to loan supply.

Corporate hybrids supply amounted to just €12bn in 2022. We expect hybrid supply will be low again this year as the hybrid space balances refinancing without too much negative reaction from the rating agencies. We forecast just €15bn in 2023 – some hybrids will not be called, or called and not replaced. We see a small increase over 2022 as expected all-in funding levels drop over the course of 2023. This could add some refinancing opportunities in 2023 and we estimate supply at just €15bn.  

Another bumper year for bank bond supply

Financial supply soared to €295bn last year, higher than in previous years. In addition, covered bond supply totalled a substantial €215bn in 2022, considerably higher than in previous years. Supply has also kicked this year off in a substantial way with some record-breaking days for supply and already €37bn issued thus far.

Looking into 2023 financials, bond supply is likely to face another strong year. For the banking sector covered bonds remain the main funding alternative, with higher interest rates and as a substitute for collateralised central bank funding. We expect unsecured bank bond funding to edge up. In volatile market conditions, the funding split is likely to remain geared towards tighter spread funding alternatives including covered and preferred senior. Once market conditions improve, loss absorption eligible paper should see more activity.