5 April 2023

Euro credit supply: Market turmoil dampened supply in March  

Turmoil in the banking sector kept primary markets closed for much of March, resulting in corporate supply of just €24bn, significantly below the average of previous years

Executive summary

Year-to-date supply is behind previous years, now at €92bn compared to €99bn in 2022, and €110bn-€137bn in the three previous years. Net supply was negative in March - at -€7bn, and after redemptions totalled €31bn. However, in saying all that, with more stability in rates and spreads after the initial turmoil, issuers came knocking on the primary market door. The newly issued bonds were met with strong demand, with books well oversubscribed, decent tightening down from IPT and rather low new issue premia.   

Real Estate supply is down 90% this year compared to the same period in 2022. The sector remains under pressure. Issuance of longer-dated corporate bonds is down since the beginning of the year, with new supply targeting the short end.

The equation may be changing for reverse yankee supply, with more attractive swapping conditions for US issuers resulting from USD credit underperformance versus EUR credit. The USD EUR spread differential has moved wider in the past few weeks. The cross-currency basis swap widened slightly in the initial turmoil, but has since narrowed. There now appear to be some attractive funding opportunities for reverse yankee issuers.  

Financial primary markets shut due to the market turmoil and bank uncertainty 

Financials 2023 YTD supply remains ahead of previous years, despite low issuance in March. YTD supply now sits at €109bn, up from €94bn last year and €80-89bn in previous years. Supply in March was low at just €18bn, with the current market turmoil and uncertainty in the credit markets leaving primary markets closed for much of the month. Net supply was negative in March at -€9bn, and after redemptions totalled €27bn.

There was a steady decline of AT1 and T2 issuance from January to March this year, with only €1bn issued during the last month. The decision of the Swiss authorities to wipe out the AT1 bonds of Credit Suisse has resulted in large uncertainty in the bank capital space and has left the AT1 market in limbo. Read more on this in our Market turmoil leaves credit in limbo report, and as explained in our Listen: Constructive on credit podcast.

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