Euro credit supply in line with expectations  

Corporate supply in June matched that of May at €36bn. The year-to-date total is now up to €197bn. This is now sitting perfectly in line with our expectation for €200bn in supply in the first half of the year. This leaves €150bn for the second half of the year to end at our projection of €350bn for 2021.

The composition of supply was mostly as expected, with a significant increase in ESG supply and longer dated issuance. As expected, there were indeed buy backs at the short end. Additionally, Corporate Hybrid supply has amounted to a notable €24bn YTD, also up on last year’s YTD figure of €17bn and ahead of year-end totals.

We expect hybrid supply will exceed last year’s full year figure of €42bn and approach €50bn. Real Estate supply continues to be substantial, now sitting at €37bn YTD, up considerably on €20bn last year YTD, and already ahead of previous year-end totals.

However, Reverse Yankee supply has been lower than expected at just €26bn YTD. We had initially pencilled in a forecast of €80bn for Reverse Yankees in 2021. However, USD spreads, particularly at the short end of the curve, have not yet underperformed against EUR. We still expect USD spreads to underperform when we do see weakness in credit in the second half of the year. This will, in turn, increase Reverse Yankee supply. However, we will struggle to reach €80bn.

We lower our bank supply estimates to €260bn from €270bn.

The financial supply (excluding covered bonds) aggregated to €153bn during 1H21, which is relatively close to the €157bn we saw during 1H20. Last month, €23bn was supplied, versus €28bn in June 2020. Covered bonds are still lagging behind last year’s equivalent of €75bn with only €48bn seen this year so far.

We have decided to revise our bank supply estimates for the rest of the year. This year, Covered bond supply has been impacted the most by the drawing of cheap central bank funds through the TLTRO-III operations. For that reason, and considering the meagre €48bn seen this year, we have decided to reduce our year-end estimates from €100bn to €80bn.

One could have expected the same outcome especially for preferred senior, while bail-in senior bond supply is less impacted by the TLTRO-III operations as it serves the purpose of meeting bail-in buffer requirements. Preferred and bail-in senior unsecured supply is actually holding up pretty well compared with last year. We consider that bail-in senior supply will likely end the year €10bn higher than we initially anticipated at €95bn. We remain comfortable with our €53bn estimate for preferred senior unsecured supply. We still expect that bank capital supply will match our initial estimates of €32bn. All in all, we lower our EUR bank supply estimates for the whole year 2021 from €270bn to €260bn.