US Dollar Credit Supply: Substantial supply in May

Substantial US$81bn in May, pushing YTD corporate supply to US$353bn

Corporate supply amounted to a substantial US$81bn in May, pencilling in the second highest month for supply this year after the considerable US$133bn in March. YTD supply is now sitting at US$353bn, which is very much in line with the YTD figures from 2015, 2016 and 2017. This is running notably ahead of 2018 and 2019. We are in line for our forecast to approach US$800bn by the year end. After June, supply will likely be sitting around the halfway mark of US$400bn. Redemptions are up to US$51bn in June, meaning we can expect heavy supply for the coming month.

TMT continues their supplying spree, issuing another US$34bn in May. TMT supply YTD has accumulated a substantial US$139bn, already exceeding 2019’s full year figure of US$128bn. The real estate sector supplied US$6bn in May. On a YTD basis, real estate supply is sitting at US$22bn, up from US$18bn last year YTD and US$14bn in 2019 YTD. We expect real estate supply will remain relatively heavy.

There was a small pick-up in Reverse Yankee supply in May, amounting to €5bn. On a YTD basis, Reverse Yankee supply is sitting at €26bn. We had forecasted Reverse Yankee supply to reach €80bn in 2021. Currently we are running behind expectation, despite the cross-currency basis swap pulling even tighter and the wide long end of the USD EUR spread differential. The 10yr area of the curve is certainly attractive for US issuers to issue in Euro but the 5yr area is still not. We still expect USD spread underperformance against EUR, particularly when we begin seeing widening on the back of inflationary fears, tapering and a rise in rates. We can expect to see more Reverse Yankee supply when the spread differential widens.

Financial YTD supply running ahead of previous years, except for last year

Financial supply amounted to US$52bn in May, an increase compared to previous years, except for last year. Redemptions were high in June at US$42bn, leaving just US$10bn in net supply. Redemptions are lower in June at just US$22bn, and as a result we may see a slight slowdown in supply for June. Financials supply has accumulated up to US$264bn thus far this year. This is up significantly on previous years apart from last year. YTD supply in 2019 pencilled in just US$185bn and US$232bn in both 2017 and 2018.

Bank Capital supply reached US$11bn in May, pushing YTD supply up to US$45bn. This is ahead of last year’s YTD supply of US$32bn and US$18bn in 2019. Pillar 2 buffers by AT1 and Tier 2 for European issuers has been a catalyst for the increased USD bank capital supply.