Corporate Bond Market: Expecting Spreads to Face Pressure with Higher September Supply
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Higher supply in September will put some pressure on spreads
• The summer ended with a substantial €19bn in corporate supply coming to the market in the last week of August. This pushed the August total up to €22bn, which was otherwise, as is the norm, a very quiet month. Redemptions in August totalled €7.2bn, thus net supply amounted to €15bn. This added some widening pressure in the past couple of weeks.
• We expect September will ring her usual busy bell of heavy supply, already seeing €7bn thus far. This could add some slight pressure on spreads over the coming weeks. Corporate YTD supply now sits at €227bn. We maintain our view that supply will end the year between €270bn and €300bn, as we expect October through to December will be relatively slow.
• Autos and Industrials remain the strongest sectors in terms of supply, both having a total YTD issuance of €41bn. Utility supply has also been decent with €5.4bn in August, bringing it to a total YTD supply of €40bn. The real estate sector, on the other hand, has seen very little supply this year, with just €6bn, compared to €22bn seen this time last year.
• YTD corporate Reverse Yankee supply is now sitting at €32bn. We forecast up to €45bn for the year. We expect relatively slow supply over the coming months, particularly now the equation for a cost saving advantage is becoming less favourable for US corporates with USD spread outperformance.
Financial supply and covered bond supply still running ahead of previous years
• Financials supply in August totalled €15bn, pushing the YTD supply total up to €228bn. Supply is still running notably ahead of previous years. Supply in September will be substantial, in line with previous years. Already, we have seen €5.5bn supplied thus far this month. Redemptions totalled €8.5bn in August, resulting in positive net supply of €6.5bn.
• Bank bond supply accounted for €14bn in August, of which €11bn was senior debt and €3bn was subordinated debt. Covered bond supply was again considerable with €14bn in August, and now sits at €166bn YTD.
