US Dollar Credit Supply: Further fall in Reverse Yankee supply next year

Corporate supply totals US$670bn YTD

Corporate supply amounted to US$60bn in November, in line with last year. However, redemptions were also large in November at US$51bn, resulting in low net supply of US$9bn for November. Supply is now sitting at US$670bn YTD, with another US$10bn or so expected in December, supply should finish around US$680bn. This is obviously considerably lower than the past two years’ totals, which means net supply has also dropped this year, particularly with larger redemptions of US$332bn. We expect net supply to finish the year at US$348bn, marking the lowest net supply since 2014. This has indeed been supportive for spreads. Next year we expect a further drop in USD supply to just US$650bn. However, this is alongside a drop in redemptions to US$265bn. This will mean an increase in net supply up to US$385bn.

Supply in the Utilities sector amounted to US$16bn in November. On a YTD basis, Utilities are now sitting at US$107bn, the second largest sector for supply after TMT. TMT supply has totalled a substantial US$208bn YTD.

Corporate Reverse Yankee supply came to €5bn in November. Supply is now sitting at €59bn thus far this year, which is down slightly from €68bn last year. We expect Reverse Yankee supply to fall further next year to about €55bn. This is due to there indeed being some cost saving advantage for US issuers, albeit this is limited to the long end. Additionally, Reverse Yankee supply is generally a fraction of both US corporate supply and EUR supply, both of which we expect to fall in 2022. This fall in issuance of Reverse Yankees, as well as value presented by the primary activity in general form the backbone to our view that we do see value in Reverse Yankee bonds, particularly in the primary market.    

Largest financial supply on record

Financial supply totalled US$41bn in November, up on previous years. YTD supply is now sitting at US$541bn. This is now US$50bn ahead of supply last year YTD and will finish the year the highest on record.

Financial Reverse Yankee supply was €5bn in November, with the YTD total now sitting at €39bn, up on last year’s €23bn, and is now the largest supply seen since 2016.