IGM Global Credit Snapshot – February 2023

Volumes in Europe and the US hit record levels for the month of February at EUR165.1bn and USD156.65bn (ex-SSA) respectively, whilst APAC had a sluggish start to the month and ended up with just USD19.3572bn crossing the tapes (the sixth lowest monthly level in over seven years).

NICs were marginally higher in Europe (with the exception of SSAs), but lower in other jurisdictions, whilst coverage ratios were stronger all round on a month-on-month basis and with all regions seeing cover ratios higher in February than the respective 2022 averages

Following a record month in January, it was the busiest ever February for the single currency bond market as issuers raced to secure funding in the rising rate environment. In all, a massive EUR165.1bn was raised via publicly syndicated sales, comfortably beating the previous February record of EUR117.98bn set in 2020. Yields rose almost continually over the course of February with 2yr and 10yr German yields increasing by up to 49bp and 43bp respectively as rates markets repriced to confront the unpleasant truth of more pervasive than previously envisaged inflation. The month also came in way above the corresponding month of 2022 (EUR101.235bn), helped by another impressive contribution from SSA issuers.

IG Corporates (ex-HY): It was a solid February for euro supply with the final haul finishing up at EUR26.98bn. That marked the fourth largest February on record for the asset class but was down sharply from the EUR37.875bn that crossed the tape in January in what was the fastest start to the year for the sector. In contrast to the previous month, we were without any benchmark hybrid supply in the month, with the asset class shuttered by the rising rate environment and shakier tone. That backdrop also saw issuers pay up more this month, with the average NIC jumping up to 11.01bps (2.82bps in Jan) and the average cover dropping to 2.74x (prior month 3.5x). What remained constant in February was that ESG paper played a strong role, with 29.1% of the latest month's euro issuance coming in ethical format (42.4% in Jan)

FIG (ex-covered): A January which had produced the most supply of any month since January 2007 proved an impossible act to follow with supply falling sharply in February. Investors exerted greater pricing power too, demanding higher NICs for a second straight month. The EUR24.5bn raised included a further trio of AT1 deals and four more Tier 2 trades as investors sought out higher beta paper. Buyers appeared to have ample cash at their disposal with the average cover ratio climbing to its highest since March 2022. Standing out were AT1 deals from Julius Baer (EUR400m PNC7) and Bankinter (EUR300m PNC6) and that were covered by an incredible 11.13x and 11.33x respectively.

SSA: As alluded to above it was the SSA sector that spearheaded the record February issuance total. In all, a whopping EUR81.95bn was priced in the single currency with heavy influence once again from regular sovereign issuers including Germany, France, Italy, Spain, Belgium, Luxembourg and some Central European flavour in the shape of Poland, Slovakia and Slovenia. NICs were marginally lower across the sector at 3.64bp (down from 4.14bp in January and even lower relative to the 2022 average of 5.07bp) whilst perhaps even more encouragingly, coverage ratios rose to 4.6x (2022: 4.15x). Any hint of investor pricing power or effects of over-supply (as has been seen in other sub-sectors) were certainly not evident in the SSA sector, which appears to be plodding on in a typical 'business as usual' manner.

Covered: 31 tranches supplied EUR28.425bn this February, making it the largest February volume on IGM records since 2011's EUR23.35bn 18-tranche haul. Average new issue concessions eased considerably with Feb's figure at 2.4bp versus 5.44bp in January. Lending further evidence to improved issuance conditions during the month, average orders and cover ratios both climbed month-on-month.

HY: The rehabilitation of the HY market continued in February as investors lapped up the first EUR1bn note in a year, the first HY-funded dividend since November 2021 and the first seven-year HY-rated corporate note of the year. February 2023 volumes were more or less on a par with February 2022, with neither year seeing issuance in the back half of the month. However, the paper that was on offer this year was well received with all but two of the six trades pricing inside IPTs (and the other two at the tight end) and with half of the deals upsized. Although the first anniversary of Russia's invasion of Ukraine and a big repricing of terminal rates put risk on the back burner after Valentine's day, Teva's multi-part dual currency deal, which was marketed at the end of the February, ensured the new month got off to a healthy start, guaranteeing no repeat of last year's March hiatus.

February 2023 was another month of two halves in the APAC primary USD market, where issuance volume picked up significantly in the second half of the month after a sluggish start, as a resurgence of regional borrowers opted to navigate their way through what was often a volatile broader market backdrop. It appeared that some, who may have previously been holding out for lower interest rates later this year, finally came to terms with what is now a more hawkish outlook for rates and subsequently took the decision to capitalize on a window of opportunity rather than wait until borrowing costs potentially rise further in future.

APAC USD issuance volume closed out the month of February at USD19.3572bn (incl. Japan), down sharply from the USD45.65bn that materialized in the first month of the year. That also ranks as the sixth slowest volume month in over seven years, just beating the USD18.79bn of regional supply that priced in the same month last year. It also fell well short of the USD36.005bn that priced in Feb 2021 as well as the record-breaking USD45.151bn which got over the line in Feb 2020, before the first Covid-19 wave effectively shut the door on many regional issuers.

Investment grade issuers were dominant once again this month, accounting for USD18.572bn or close to 96% of the overall monthly total (incl. Japan), which was broadly met with a warm response from investors who proved keen to add exposure amid a recent spike in underlying bond yields. That was reflected by a decline in the average new issue concession paid by APAC IG issuers in February which, at 4.5bp, was considerably down from the 11.81bp average seen the previous month. That was exacerbated by some very economic funding levels at around flat to inside fair value secured by a host of Chinese financial borrowers with support from their typically large lead-manager groups.

However, it was Japanese financial issuers that underpinned that IG issuance volumes with a contribution of USD9.75bn, equating to more than 50% of the overall monthly total, albeit down slightly from the USD11.075bn which was placed by the industry the previous month. Those issuers which did dip their toe were also embraced by investors to varying degrees, as highlighted by the healthy average cover ratio of 3.52x and a modest new issue concession of 9bp on average paid by those Japanese IG names.

High yield issuance remained muted in February, although the month was not a complete washout thanks to Chinese property company Wanda Properties (Ba3/-/BB) which sold its second offshore bond this year. The group placed a USD300m 11.00% Feb 2026 senior unsecured line having managed to ride on the coattails of the success of its USD400m 2yr bond sold in January. That failed to pave the way for other developers to follow suit however, consistent with renewed pressure on the wider sector's offshore bonds in the secondary market, amid valuations that had begun to look overheated after such a massive and prolonged rally that lasted ca. 11 weeks from early November 2022 until well into the new year.

Ex-SSA volume for February 2023 came in at USD156.65bn – the most prolific ex-SSA issuance February on record. This stands out further if we note that February is not known as one of the busiest issuance months of the year (#7), averaging only USD95.244b in ex-SSA issuance over the last decade.

February 2023 volume not only surpassed market estimates, but its total issuance came as a complete surprise to just about everyone, even those who thought we could see as much as USD125bn come to market. As a matter of fact, for only the second time in history has February topped January issuance (2015).

In terms of sectors, Industrials topped February issuance with USD85.1bn (54%), while Yankee Utilities had the smallest representation at 0.96% (USD1.5bn).

For the month of March, the Street is looking at an overall issuance tally averaging USD185bn. The lowest estimate came in at USD135bln, while the highest estimate came in at USD230bn.

March estimates should perhaps be looked at within the context of the last three Marches; all produced over USD200bn in new issuance (USD258.72bn, USD201.2bln and USD231.9bn). Over the last decade, the month of March has averaged USD150.7bn in ex-SSA issuance volume, ranking it as the busiest issuance month of any year. Even adjusted for the unexpected windfall that February has provided, March could still wind up producing roughly USD150bn, if not more.

US high yield volumes for February 2023 came in at USD13.925bn, a 42.88% y/y increase from February 2022 when USD9.746bn came to market, even as the number of deals stood the same in both years at 17. Although February 2023's USD13.925bn marked an improvement from one year prior, it was only approximately a third of the volume from February 2021 when U.S. HY volume totaled USD37.584bn. Volume for February 2023 was also -31.57% lower than the USD20.35bn tally seen in January, but year-to-date (to the end of February), 2023 issuance slightly outpaced 2022: USD34.275bn vs. USD34. 031bn (a 0.72% increase).