IGM Global Credit Snapshot – November 2022

• Overall EUR-denominated supply rose by 17% m-o-m in an unusually active November as issuers took advantage of improving sentiment and tightening spreads to lock in late 2022 funding. The EUR116.12bn raised qualified the month as the busiest November ever.
• In the APAC region, issuance volumes closed out at USD17.48bn in November including a USD1.85bn contribution from Japanese issuers. That comfortably exceeded the paltry USD7.697bn that made it over the line the previous month and also ranks as the second highest volume month since May 2022, only topped by the USD25.345bn of issuance that was placed in the typically active month of September.
• Ex-SSA US volume for November came in at USD101.88bn, which barely missed the 10yr average November volume of USD102.949bn but surpassed the highest monthly estimate of USD97.5bn. This total also marked only the fifth time in the last decade November volume ex-SSA surpassed USD100bn

** Overall: Overall EUR supply rose by 17% m-o-m in an unusually active November as issuers took advantage of improving sentiment and tightening spreads to lock in late 2022 funding. The EUR116.12bn raised qualified the month as the busiest November ever. Banks led the resurgence where non-covered FIG supply more than trebled vs October to account for 37% of the entire month's volumes as financials rushed back in to follow a challenging October. Not all asset classes were active though as a relative dearth of sovereign supply saw SSAs slump to their second slowest month of 2022 so far. While sentiment toward risk assets improved, underlying rates curves flattened with the German 2s/10s curve inverting as slowdown risks and China Covid concerns intensified, pulling oil prices sharply lower.

** FIG (ex-covered): A frontloaded month saw issuers regain greater pricing power as the improved mood brought uninvested cash surging off the side-lines. Strong issuance conditions facilitated what was easily this year's biggest month for the asset class while volumes were also over 60% bigger than November last year. With that, average NICs fell sharply (to the lowest since May) while the average cover ratio was the highest since March.

** IG Corporates (ex-HY): Euro supply picked up slightly from the previous month to EUR28.845bn (EUR22.6bn in October) but was broadly in line with expectations after the previous 10 Novembers had averaged EUR29.03bn. Noticeable that was that November's issuers secured more economic funding on the whole against a more favourable broader backdrop, with the average NIC paid plunging to 10.48bps from the previous month's 29.15bps. Bringing November's average down were two very well received hybrid trades from Orsted (EUR500m 1000NC6 green) and EDF (EUR1bn PNC6), which both priced well inside fair value estimations on the back of final blowout demand of EUR4.9bn and EUR5.6bn respectively.

** SSA: In contrast to the other asset classes SSAs had the second lowest volume month of the year so far. Just EUR25.15bn of SSA supply crossed the line with that figure heavily flattered by one issuer. The European Union actually accounted for 34% of the month's supply, with an EUR8.5bn dual tranche that included a new long 10yr Green benchmark. Sovereign issuance was subdued with just Hungary and Denmark choosing new syndicated deals with the latter marking a rare foray into the EUR-denominated space for an issuer that has recently relied upon supply in its home currency. New issue concessions averaged 7.93bp (down from 11.96bp in October) despite the aforementioned Hungarian Green 4yr line adopting a pragmatic approach and pricing with a 50bp NIC.

** Covered: Unsurprisingly, the month that heralded 2022 as biggest year for euro covered issuance was itself among the record-breaking months for volumes. EUR18.6bn was sold during November across 22 lines, the most activity that the month had seen since 2006 (formally the highest volume year) when EUR20bn+ was launched. Notable during the month was that issuers continued to favour the shorter end of the curve, with the average tenor at 4.08yr, slightly down from 4.49yr during October with two further 2yr lines following LBBW's pioneering 2yr trade and BNS 2yr both from October. Elsewhere, the sector seemed to be showing some signs of fatigue as average cover ratios eased slightly, in step with slower average spread compressions, while average NICs increased to a four-month high.

** High Yield: Volumes in high yield remained subdued despite Faurecia printing the largest single corporate note in the single currency since February (and third largest this year). However, that was the only action the market saw in November as the monthly volume failed to top EUR1bn for the fifth time this year. Faurecia's EUR700m 7.25% 3.5NC2 SLB sold during COP27 was a far cry from 12-months earlier when the same issuer raised EUR1.2bn of 2.75% 5.25NC2.25 sustainability-linked paper during COP26 as part of a blockbuster week for HY ESG issuance when EUR5.73bn printed.

** A slew of financial issuers from Australia and China returned to the APAC USD primary bond market in November, underpinning a jump in issuance volume in the process, albeit from a very low base. That coincided with more accommodating funding conditions for borrowers amid a tightening of regional credit spreads and a decline in underlying government bond yields. That was driven by heightened expectations of less aggressive US monetary policy starting in December, along with signs that China is finally pulling back from its zero tolerance Covid policy.

** Overall issuance volume closed out at USD17.48bn in November when including a USD1.85bn contribution from Japanese issuers, comfortably exceeding the paltry USD7.697bn that made it over the line the previous month. November also ranks as the second highest volume month since May 2022, only topped by the USD25.345bn of issuance that was placed in the typically active month of September.

** Investment grade supply was dominant once again, totalling USD13.228bn (excluding Japan). That was underpinned by a mixture of senior unsecured, subordinated tier 2 and covered bond funding from a handful of antipodean lenders in the shape of Westpac, NAB, CBA and ASB Bank.

** The balance was dominated by a mini revival of Chinese financial supply spearheaded by Bank of China which raised a combined USD1.2bn via three senior unsecured transactions. This asset class typically raises dollar funding at aggressive levels often inside what is considered to be fair value, and the month of November was no exception. That in turn skewed the new issue concession on November's investment grade supply to 7.17bp on average, down from a historically high 24bp in October.

** Finally, the high yield market remained in the doldrums where it has been for most of this year, producing just USD110m of issuance in November (excl. Japan), which was actually an improvement from the prior two months when absolutely nothing got over the line whatsoever. Regional high yield issuance has now been limited to just USD410m in the past six months, as contagion from the distressed Chinese property sector continued to keep the market closed for business.

** Ex-SSA volume for November came in at USD101.88bn, which barely missed the 10yr average November volume of USD102.949bn but surpassed the highest monthly estimate of USD97.5bn. This total also marked only the fifth time in the last decade November volume ex-SSA surpassed USD100bn.

** Although we don't dedicate much space to overall (SSA-inclusive) issuance, it's worth noting that November's USD113.14bn topped all monthly estimates and was also the fifth busiest overall issuance month of the year.

** Ex-SSA issuance is now running 15% behind last year's pace (USD1,201.781bn versus USD1,413.571bn), while overall issuance is running 19.2% behind last year at this juncture (USD1,429.241bn versus USD1,768.491bn). In terms of sector issuance, domestic industrial issuance has declined 22% from last year, while utility issuance is lagging by 16%. FIG issuance is only off 3% from last year. Meanwhile, Yankee Industrial issuance is down 34%, Yankee Financial issuance is down 11%, though Yankee Utility issuance is up 14% from a year ago. SSA issuance is down 36% from a year ago.

** Due to the holidays, December sees issuance pause at around the seventeenth of the month; in 2021, the last trade took place on December 9; 2022 may see issuance until the twenty-second (which only happened three times in the past 22 years). During the past decade, December volume has averaged just over USD38.7bn; December 2018 had the lowest total in the past 10 years at USD8.3bn, while December of 2008 produced the most (USD115.68bn). December 2021 produced an impressive USD63.275bn

** For December, the Street provided diverse forecasts. Some market participants view this month to produce numbers typical of historical December issuance, with no more than USD15bn coming to market; others, however, forecast as much as USD35bn. The average forecast is USD25bn most of which would be expected to price next week.