US Dollar Credit Supply: Elections mean slower supply in second half

• Corporate supply totalled US$54 in June, up on the previous two June levels. Supply now sits at US$471bn YTD, ahead of most previous years (apart from 2020’s Covid-fuelled supply). We expect supply to slow in the second half of this year - elections will close issuance windows and perhaps cause some minor volatility. A large amount of supply has been frontloaded to 1H, reflecting favourable issuing conditions in the form of tight credit spreads and large demand. USD credit has remained tight and has moved mostly sideways, with the market appearing to be pricing in a Trump election win.
• Utilities remain the primary driver, with US$19bn in June, followed by Industrials & Chemicals. Utilities has been the largest issuer of the past two years, alongside Healthcare. The standout supply performances this year are from Autos and Industrials & Chemicals, with 126% and 59% year-on-year increases respectively.

Tight USD spreads mean there is low cost saving advantage in the short end for Reverse Yankees, but attraction is more apparent in the long end.

• There were interesting developments in the cross-currency space as the basis swap widened. USD spreads have underperformed EUR spreads recently, pushing the spread differential wider. USD spreads are still rather expensive, and we think the low USD:EUR differential is here to stay.
• The larger spread differential at the moment leaves no additional cost saving advantage in the 5yr due to the increase in cross-currency basis swap. The 10yr area has seen a larger widening in spread differential compared to the increase in the basis - we may see more longer-dated Reverse Yankee bonds.
• There has been a significant increase in Reverse Yankee supply in May, with €21bn coming to the market. YTD supply now sits at €48bn. The new deals from the US issuers look slightly more attractive, with a little bit more NIP on offer. This was largely driven by an increase in M&A activity and net investment hedging. We see value in Reverse Yankee bonds in the primary market, offering higher NIPs.