Euro Credit Supply: Expect an increase in corporate supply in May

Very low month for supply in April, we expect an increase in May

Corporate supply was particularly low in April, amounting to just €9bn. YTD supply is now sitting at just €111bn, running substantially behind previous years, particularly the past two years which were sitting at €134bn in 2021 and €183bn in 2020. YTD supply in 2017 is more in line with this year, with €109bn. We stand by our forecast of €250-290bn in corporate supply for the year. 

We expect supply could increase in May, as many corporates will want to pre-fund the summer months and most importantly, come to the market while the ECB is still present purchasing under CSPP. As it stands, the ECB are still putting in 30% of orders in their primary market purchases, down from the 40% they used to. There is of course a risk that this may drop further, perhaps to 20% or 25%. This is therefore another reason why many issuers are likely to come to the market in the coming weeks. Therefore, we could expect to see some supply indigestion pushing spreads further wider from here. Similarly, we expect weakness in credit come September, when supply will cause indigestion and the lack of CSPP support, which is likely to mean that spreads will test the high end of the range once more.

Corporate Reverse Yankee supply is totalling €12bn on a YTD basis, down on the €22bn supplied by this time last year. Furthermore, supply YTD had totalled €30bn by this time in 2019 and 2020. We initially forecasted €55bn for Reverse Yankee supply in 2022, however, considering the low levels thus far this may be less.    

Bank senior supply and covered bond supply running ahead of last year

Financial supply (excl. Covered) amounted to €21bn in April, up on the €15bn supplied last year in April, but more in line with previous years. Supply has now totalled €111bn on a YTD basis, running ahead of previous years. The increased supply is mainly driven by Bank issuance, now at €76bn, up from the €63bn seen by this time last year.

Similarly, covered bond supply is very substantial this year, with YTD supply sitting at €93bn, just shy of the full year totals seen in both 2020 and 2021. YTD covered bond supply was at just €32bn last year. We raise our forecast for covered bond supply up to at least €130bn for 2022.