US Dollar Credit Supply: Relatively low supply seen in August

Supply in August totalled US$35bn, lower than the previous year’s level. However, this is higher than June’s supply and, more notably, July’s. We expect supply in September to increase to the usual heavy amount for the month. Corporate YTD supply now sits at US$500bn, and after redemptions, YTD net supply now sits at US$117bn.

Net supply this year will still be low, but we revise our forecast modestly higher to US$650bn on the back of slightly heavier supply seen in the first six months of this year. But we still expect supply to slow in the second half of this year as large prefinancing has been done and many issuers will be looking forward to potential rate cuts in 2024.

In terms of spread levels, we don’t expect any further USD spread outperformance in the coming months. USD spreads have already tightened to the low end of the trading range, and the spread differential between USD and EUR on an asset swap basis is now at average levels historically. Furthermore, EUR spreads do have more potential for tightening to low levels seen through the years, relatively. Lastly, on a G-spread basis, the differential is actually inverted.

YTD corporate Reverse Yankee supply is now sitting at €32bn. We forecast up to €45bn for the year. We expect relatively slow supply in the coming months, particularly now the equation for a cost saving advantage is becoming less favourable for US corporates with USD spread outperformance