Euro Credit Supply: Picking up in the last two weeks of May

Corporate supply in line to reach our half-year forecast of €200bn

• In May, corporate supply amounted to €35bn, in line with the €37bn and €32bn seen in 2018 and 2019. Of the €35bn, €23bn was supplied in the final two weeks of May. On a YTD basis, corporate supply is sitting at €162bn. This is, of course, below the substantial crisis-fuelled supply of last year, sitting at €242bn YTD. But supply is now running ahead of 2019’s YTD supply of €156bn. Supply thus far is nicely in line with our forecast of €350bn by the year-end, in which we had forecast €200bn in the first half and €150bn in the second half of the year. We expect supply in June to pencil in c.€30-35bn, leaving the first half of 2021 supply just marginally shy of the €200bn expectation.
• The real estate sector pencilled in a substantial €8bn in May. Real estate was the sector with the most supply, alongside Utilities also issuing €8bn. On a YTD basis, the real estate supply sits at €28bn, up significantly from €16bn last year YTD and €10bn in 2019 YTD. We expect real estate supply will remain relatively heavy.
• Corporate hybrids have also seen a significant supply of €5bn in May, pushing the YTD total up to €22bn. Again, this is already ahead of the previous year full-year totals. Nonetheless, this is still marginally below our expectations, and still, a sizeable amount of supply is required to reach our forecast of €50bn.

YTD financial supply in line with previous years covered bond supply lags

• €26bn in financial bonds (excluding covered bonds) was supplied in May 2021, versus €15bn in April. We note that the bank capital issuance rose from €2bn in April to €5.7bn last month, supported by higher redemptions. In addition to that, the possibility to complement the Pillar 2 buffers by AT1 and Tier 2 instruments in addition to the CET1 capital brought by the ECB in 2020 remains a supporting factor for the subordinated segment in 2021. As a result, €3.5bn was supplied in the Tier 2 segment and €2.3bn in the AT1 bucket in May, amounting to the YTD supply to €18bn, versus €16bn in 2020YTD.
• Supply on a YTD basis now aggregates to €125bn, only €2bn below last year’s equivalent. However, covered bonds are still lagging, with only €41bn supplied this year, compared with €65bn in 2020 YTD. Financial issuers are still favouring the longer maturity buckets. 30% was issued in the 6-9yr segment and 47% in the +9yr segment. French financial companies are still leading the supply with €18bn YTD, followed by the US and Nordics financials companies at €14bn YTD.
• Redemptions (excluding covered bonds) will amount to €16.2bn in June compared to €14.9bn last month. The preferred senior bonds account for almost half of the bonds due in June. Therefore, we might expect a stronger preferred senior supply in the coming month.