US Dollar Credit Supply: Somewhat lower supply in August

Low corporate supply in August relative to previous years, but still sizeable

Corporate supply amounted to US$55bn in August. This is relatively lower than the average US$70-80bn on previous years. Nonetheless, US$55bn is still a sizeable amount, up on July’s low figure of US$31bn. Redemptions in August amounted to US$31bn, resulting in net supply of US$24bn. Redemptions in September will be US$51bn, which suggests supply will be significant in September. Although in any case, September generally sees substantial primary market activity.

Corporate Reverse Yankee supply was slow in August at just €2.7bn. On a YTD basis, Reverse Yankee supply is sitting at €29bn. USD spreads have widened out notably over the summer. This is mainly due to the comparative lack of direct support from the Fed relative to the ECB’s corporate bond purchases under CSPP and PEPP. Furthermore, the tapering talk is coming to the forefront in the US. However, EUR spreads have underperformed slightly over the past two weeks, with some widening to the tone of around 5bp over the past 2-3 weeks. The USD EUR spread differential has been widening, apart from the slight tightening on the back of EUR underperformance, in both the 5yr and 10yr areas of the curve. We expect a continuation of USD underperformance relative to EUR. This opens up more cost-saving advantages for US corporates to issue in Euro. Therefore, we will likely see an increase in Reverse Yankee supply.

Financial supply low in August at US$29bn   

Financial supply was rather low in August at just US$29bn. This pushes YTD supply up to US$387bn, which is running ahead of most previous years, with the exception of last year’s US$394bn. Redemptions is August totalled US$24bn, leaving net supply of US$5bn. Redemptions over the remaining months of the year are relatively low. This suggests supply may be similar to last year’s levels.

Bank senior supply totalled US$14bn in August, of which US$10bn was preferred debt and US$4bn was Bail-in. On a YTD basis Bank senior is sitting at US$193bn, of which US$103bn was preferred and US$90bn Bail-in. Bank senior supply is running behind last year’s US$208bn. However, Bank capital supply is running ahead of last year, with US$64bn versus US$49bn last year.