US Dollar Credit Supply: Pick-up in Financial supply

Higher all-in funding costs keep supply very low

Supply for Corporate Credit at just US$23.8bn was significantly low this July compared to previous years. This makes it the lowest month so far this year. With redemptions sitting at US$28.61bn for the month, it resulted in negative net supply of US$4.9bn. On a YTD basis, supply is sitting at US$346bn, substantially lower than previous years, especially compared to the substantial levels seen in 2020 and 2021, which totalled US$833bn and US$449bn YTD, respectively, and the average US$497bn that is normally supplied by July in the previous years.  

The Industrial & Chemicals sector had the most supply of credit amongst all the other sectors last month, with US$10bn. In terms of YTD, the Industrial & Chemicals sector totalled US$53bn, which is 8% higher than the US$49bn seen last year. This makes it only two sectors that saw increases on last year’s YTD figures, the Industrials and Chemicals sector and the Autos sector, which is now up 71% from US$14bn last year to US$23bn thus far this year.

Reverse Yankee supply has also been limited this year, at just €18.7bn YTD. EUR spreads have underperformed against USD spreads over the past month. Thus, the USD-EUR differential has widened out significantly. This does open the door for some Reverse Yankee supply in the 10yr, However, as overall supply is low, we do not expect Reverse Yankee supply to be substantial. 

YTD Financials supply on par with 2020 and 2021, up from previous years

Financials credit supply saw a substantial increase MoM, as it increased from US$24.2bn to US$51.9bn. This makes it the highest amount in four months since March’s US$77.3bn figure this year and the highest in the past four years. Redemptions were quite high in July at US$22.3bn, but net supply was still positive at US$29.5bn. Financial credit supply is now sitting at US$369bn YTD. This is only in line with the past two years and is up on previous years, on a YTD basis.

Naturally bank supply accounted for most of the financial credit supply where Bank senior supply accounted for an unprecedented US$42.9bn this month and US$5bn in Bank capital supply.