Euro credit supply: Net corporate supply to drop by half in 2022

• Corporate supply is at €300b so far this year. We expect that level to climb to €330b by the end of the year. We forecast lower supply for next year, of around €290b on the back of recent pre-funding, high levels of cash on the balance sheets, less need for rating defence in hybrids, robust loan issuance, manageable M&A and only mildly attractive funding opportunities for foreign issuers.
• Redemptions have already been higher in 2021, resulting in a drop in net supply to an expected €116b. This has played into the strong technical picture seen in 2021. Redemptions are higher again in 2022, pencilled in at €223bn. Therefore, we expect net supply to be half of that seen in 2021, at c.€67b, a 10-year low.
• The cross-currency basis swap has widened over the past two weeks, making it somewhat more expensive to swap. USD spreads have underperformed against EUR. This opens up more cost saving advantages for US corporates to issue Reverse Yankee bonds. October saw €10b in corporate Reverse Yankee supply. We expect USD spreads to underperform in 2022. The technical picture in EUR is considerably stronger, with a further reduction in net supply expected and substantial ECB support to continue.

Net financial supply up compared to last year

• Financial supply is pencilled in at €22b in October, pushing the year-to-date total up to €228b. This is up on last year’s €207b supply by this point. Redemptions are down to €169b in 2021, from €192b last year. Therefore, alongside higher supply, net supply will be larger this year than the €40bn in net supply last year. Bank senior debt supplied €10b in October. Supply is now sitting at €126b on a YTD basis, compared to €122b last year by this point.
• Covered bonds supplied €14b in October, up on just €8bn supplied in October 2020. Covered bond supply is now at €91b thus far this year, just slightly behind the €95b supplied last year by this time.