US Dollar Credit Supply: Large corporate supply vs low financial supply

Large supply in May pushed YTD total ahead of most previous years

There was very substantial corporate supply in May totalling US$124bn, in line with the large supply seen in February. On a YTD basis, supply is sitting at US$394bn, running ahead of previous years, and second only to the record-breaking 2020 levels of US$694bn by this time. Supply is now over US$100bn ahead of last year’s US$292bn in the same period. We believe much of this year’s supply has been front loaded as economic uncertainty persists, resulting in our expectation of a slowdown in supply in the second half of this year.

After US$58bn redemptions in May, corporate net supply amounted to US$66bn. Supply in Healthcare was significant this May, with US$40bn supplied. This is the highest month for the healthcare sector in the past year and a half. TMT supply was also large, at US$29bn, although on a YTD basis TMT is still aligned with last year.

Reverse Yankee supply is adding to the barrage. Reverse Yankee supply was also plentiful in May, with €12bn issued. The calculation was favourable for a cost saving advantage for US issuers to bring a EUR bond to the market, namely on the back of USD spread underperformance versus EUR. This differential is now narrowing, particularly in the 5yr. Deals included Booking, AT&T, Corning and American Tower. These deals were priced very much in line with the market, with new issue premium (NIP) higher due to some supply indigestion. Reverse Yankee deals tend to offer a more attractive NIP, particularly when the cost saving advantage is decent. This added to the barrage of EUR supply we saw, further adding supply indigestion pressure to EUR credit.

Financial supply very low on a YTD basis

Contrary to corporates, financials supply was low in May with only US$26bn in new issuances, due to the large uncertainties surrounding the banking environment currently matched with much higher funding costs. This is lower than the already small supply of US$29bn in April this year, and significantly lower than the US$47bn from May last year. YTD supply now sits at US$170bn, down 43% compared to the same period last year. Pressure on the financial sector persists, resulting in low supply numbers.