Euro Credit Supply: Large supply in 2024

A large year for corporates supply, but December should slow

Corporate supply reached €31bn in November, an increase from the previous month and in line with typical November levels observed in past years, despite the US elections limiting the windows of opportunity. Supply this year continues to surprise to the upside with a significant €384bn issued YTD. We don’t expect supply will grow much more in the last month of the year, as a quiet December is likely after such a busy year. January will, as usual, be a very busy start to the year, and remain busy as we expect an increase to €400bn next year.  

The cross-currency basis swap equation has changed notably – the EUR basis discount has evaporated and is now trading at close to zero. As detailed in our EUR/USD Cross Currency Swap report, there is no mechanism to reverse this, at least not for now. In addition, the large outperformance of USD credit versus EUR credit has left the 5yr differential (with rate adjustment) in negative territory, and the 10yr at very tight levels.

The spread differential component does leave some potential opportunities for Yankee supply, as it may become cheaper for European corporates to issue in USD. In which case, for as long as this current equation lasts it could be a technical positive for EUR credit. However, due to the differential longer on the curve and combined with the now very low cross currency basis swap, Reverse Yankee supply also becomes more attractive to issuers. We continue to like and see value in Reverse Yankee bonds, generally offering a decent NIP and performance after issuance in the secondary.

November marks historically low financial supply

Over November, only a little over €18bn was supplied by banks across the liability structure, nearly €10bn behind October levels. The drop is especially strong in the covered segment where only was €2bn printed last month versus nearly €11bn in October. There are two main reasons for this: the primary market slowdown during the US presidential election week and the relative underperformance of covered bonds over the last months.

In the senior unsecured segment, supply also dropped although less than for covered bonds with nearly €10bn issued. This is split with €4.4bn in senior preferred bonds and €5.5bn in senior bail-in instruments. These drops were partially compensated by the increase in subordinated issuances.

Interestingly, most issuers turning to the senior unsecured segment decided to bring sustainable instruments. Indeed, 26% of senior preferred EUR benchmark issuances and 48% of bail-in bonds were issued in a sustainable format.