Euro Credit Supply: Large supply in first half; expect slowdown in second

• Supply thus far this year has been strong with year-to-date supply already at €236bn, ahead of previous years. This surprise to the upside has been met by very strong demand, with subscription levels at record-breaking highs (at an average of nearly four times versus the normal average of three times). New Issue Premia has been very low (at an average of 0-4bp).
• Supply has been significant in the first half of the year - with front loading in order to take advantage of the large demand, relatively tight spreads and uncertainty on the horizon for the second half of the year with growing geopolitical concerns and multiple elections taking place. Normally we would see a 60-40 split between the first half of the year and the second. This year we expect the split could be closer to 70-30.
• We had forecast an increase, but not record-breaking supply for 2024. We are on track to see larger supply than last year, despite a slowdown expected in the second half. We may still see supply surprise slightly higher than previously expected. This comes on the back of a soft landing in the economy and as such, an increase in M&A activity. We expect supply will continue to be met by strong demand.

We have seen slower senior unsecured supply YTD but subordinated debt is up.

• Unsecured bank bond supply is running at €159bn YTD, while banks had printed a total of €173bn in an unsecured format by the end of June 2023. It could be that banks have considered the uncertain market outlook and started with the more difficult tranches in their issuance programmes. The main segment driving the slower issuance to date is senior unsecured.
• Preferred senior unsecured debt is currently running c.€22bn below the level reached during the first six months of last year. In bail-in senior banks have issued c.€67bn for the first six months, compared with €76bn for last year.
• Subordinated debt issuance is well ahead of last year at €37bn YTD, vs €24bn last year. In particular, Tier 2 issuance has remained very strong this year.
• We forecast full-year unsecured bank debt issuance to reach €270bn, with another €111bn (43% of the total) in store for 2H.
• We remain comfortable with our full-year covered bond supply estimate of €180bn, with €5bn of this issued in sub-benchmark format, €5bn in FRN benchmark format and €170bn in fixed coupon format.