3 March 2023

US Dollar Credit Supply: Substantial corporate supply in February

Corporate supply was very substantial in February, totalling US$126bn, and pushing YTD supply to record-breaking levels of US$171bn. In addition, the attraction for Reverse Yankee supply is growing

Executive summary

Record-breaking supply YTD thus far at US$171bn

Substantial corporate supply in February, totalling a significant US$126bn. This is the highest monthly supply since March 2021, jumping just slightly higher than March 2022. After US$45bn supplied in January, YTD supply thus far this year sums up to US$171bn. This is significantly larger than previous years, with 2021’s US$140bn the next largest YTD figure. Redemptions were just US$47bn in February, meaning net supply amounted to US$79bn. As a result, net supply YTD is now at US$85bn.

The Healthcare sector saw the most supply last month with US$34bn, followed by US$28bn in TMT. The Utility sector and the Consumer sector also saw notable amounts with US$20bn and US$18bn respectively. Furthermore, a large portion of last month’s supply was longer out on the curve, with US$42bn in the 9-12yr maturity bucket and US$34bn in the 17yr+ maturity bucket.

Reverse Yankee supply totalled another €5.5bn in February, now €11bn for the year thus far. The cross-currency basis swap has tightened since October by about 15bp in the 5yr and 8bp in the 10yr. In addition, the cross-currency basis swap is also not that wide historically. At the same time, the USD EUR spread differential has widened, particularly on the 5yr, albeit marginally tighter on the past week. As a result, the 10yr area has opened up an even larger cost saving advantage for US issuers to issue in euro and swap back to USD. And this is now the case for the 5yr too. This creates an attractive cost saving advantage for Reverse Yankee supply.

Financial supply was somewhat low in February, as Bank capital is most favoured

Financial supply was somewhat low at just US$20bn in February. This is marginally lower than previous years, which normally came closer to US$25-30bn. Furthermore, redemptions amounted to US$28bn in February, meaning last month’s net supply was negative at -US$8bn. Financial supply is now sitting at US$87bn on a YTD basis. This is lower than the US$104bn and US$136bn seen in 2021 and 2022 respectively but is closer to the US$91bn seen in 2020. 

Interestingly, issuers focussed on Bank capital supply, as US$8bn AT1 and T2 supply came to the market, compared to just US$4bn in Bank senior. Although the reverse can be said about January, therefore on a YTD basis Bank senior supply totals US$59bn, while Bank capital amounts to US$12bn.

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