US Dollar Credit Supply: Larger corporate net supply expected in 2022

Lower corporate supply expected in 2022, but increased net supply

Rather low corporate supply in October at just US$28bn, pencilling in the lowest monthly supply seen this year. Supply is now sitting at US$608bn YTD, largely in line with the US$611bn supplied in 2019 on a YTD basis. We expect supply will reach up to US$680bn by the end of the year. This places net supply at around US$350bn, after redemptions of US$332bn.

For 2022, we expect supply to fall to around the US$650bn mark. This would likely pencil in the lowest supply in the past seven years. Redemptions are also lower in 2022, at just US$265bn, which will increase net supply up to US$385bn. This reduces the technical strength of USD credit. This is another reason for our expectation that USD spreads will underperform EUR spreads in 2022.      

The cross currency basis swap has widened over the past two weeks, making it somewhat more expensive to swap, however, USD spreads have underperformed against EUR. This opens up more cost saving advantage for US corporates to issue Reverse Yankee bonds. October saw €10bn 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 the substantial ECB support to continue.

Financial net supply expected to total US$160bn by year end

Financial supply amounted to US$69bn in October. It is the highest month of supply this year. This is considerably higher than the average US$35bn seen over the past number of years. On a YTD basis, supply is now sitting at US$499bn. Redemptions are pencilled in at US$481bn for 2021, meaning net supply should be very manageable this year. Redemptions are similar next year at US$483bn, but increase substantially in 2023 up to US$520bn.