IGM Global Credit Snapshot – January 2023

• Overall EUR supply surges to an all-time record monthly high in January, led by SSA and FIG.
• APAC region witnesses early 2023 rush before slowing into Lunar New Year and earnings.
• US (ex-SSA) sees third busiest January ever, NICs come in below the 2022 full year average.

Overall EUR supply surged to an all-time record monthly high of EUR260.484bn in January as cash rich investors supported a flood of paper from issuers keen to take advantage of receptive conditions. With investors looking beyond the current cycle of rate hikes and yields falling, SSA issuers provided the bulk (43%) of overall supply, followed by non-covered FIG (25%), covered (16%), high grade corps (14%) and a welcome contribution from high yield corporates (2%) as appetite for risk improved.

FIG (ex-covered): January got 2023 off to a flyer with receptive conditions allowing issuers to raise the most in any single month since January 2007, a year which was to bear witness to the global financial crisis. With investors keen to play catchup following the brutal repricing which took place in Q1-Q3 of 2022, buyers sought out higher yielding offerings, making bank capital paper a hot commodity. Five European lenders raised EUR4.35bn via AT1s during the month with deals that were covered by an average of 4.8 times and performed strongly in the secondary market. YoY comparisons also highlight the degree to which investors were willing to support new supply with January 2023 volume more than double the corresponding month of 2022 while new issue concessions remained measured as issuers retained significant pricing power despite the huge pick up in supply.

IG Corporates (ex-HY): The single currency corporate bond market saw its quickest ever start to the year with the EUR37.875bn to price beating the previous January record of EUR35.7bn seen in 2021. Underpinning the bumper haul were ESG trades which tallied EUR16.3bn. Also contributing were hybrid bonds, with borrowers tapping into what has been insatiable investor demand for the higher-beta product. Seven IG corporates priced EUR5.85bn of hybrid securities in January, which is almost half as much at the EUR12.2bn seen across the whole of 2022. Combined demand for the EUR5.85bn to print in the format came in at EUR28.85bn (EUR39.85bn peak) to give a final cover ratio of 5.18x. In comparison, the month's senior trades were covered by (a still impressive) 3.27x on average. The hybrids printed inside where leads pitched fair value (average NIC -23.33bps) whilst the senior trades offered an average premium of 6.74bp premium.

Covered: January's issuance came agonisingly close to breaking supply records for any month, and the EUR41.05bn final print was just shy of the top spot held by Jan 2011's EUR43.55bn. Investors, spoilt for choice, demanded a bit more premium to participate, resulting in relatively higher average NICs as compared to previous Januarys. Among the many 'firsts' of the year, the reopening of the CEE market and the re-emergence of long-dated paper stand out. Also notable was the strength of ESG issuance and the EUR4.55bn issued across eight lines makes January the biggest month for covered ESG issuance ever both by volume and number of deals.

SSA: A monthly haul of EUR111.535bn catapulted January 2023 into second place of the all-time largest months for SSAs, just behind the bumper EUR118.5bn recorded in January 2021. An average cover ratio of 3.83x is in line with the average achieved since the start of 2021 (4.13x) and was helped by deals from the EU and sovereign issuers Slovenia, Portugal, Belgium, Ireland (NTMA) and Spain. Average new issue concessions of 4.14bp were higher than the average since 2021 although they were significantly lower than those witnessed between September and November of the prior year.

High Yield: Although a little late to the 2023 party - the broader euro bond market had already printed EUR168.28bn of new issuance before Tereos priced the first HY deal of 2023 - momentum swiftly built in the back half of the month. By the time Emeria completed its EUR400m 5NC2 note on the final day of the month, the January total stood at EUR5.015bn (including HY-rated TDC's IG-rated EUR500m trade). And, although that was still down on January 2022's EUR6.01bn, it was the highest monthly total since then, and over twice as much as any monthly total since March 2022.

There was certainly no shortage of issuers keen to capitalise on what were arguably the most accommodating funding conditions available for months. However, having seen a robust USD41.325bn of regional supply comfortably soaked up by investors in the first two weeks of January (incl. Japan), momentum slowed down sharply thereafter. That was attributed to a combination of elevated cross asset volatility, the lengthy Chinese New Year break and a flurry of headline event risk including the FOMC meeting, heavyweight corporate earnings and a raft of key economic indicators, the upshot of which saw just USD4.325bn of regional supply make it over the line in the final nine trading sessions of the month.

Investment grade issuance was dominant in Jan 2023, accounting for USD44.115bn or ca. 96.6% of total APAC US supply (incl. Japan), underpinned by a handful of multi-tranche transactions to which SOE/Sovereigns, Financials and Corporates also contributed notably.

While new issue concessions paid by IG issuers in January did edge higher than those seen at the tail end of 2022 when issuance volumes were considerably lighter, at 11.8bp on average, they were still notably smaller than those paid throughout much of 2022, which peaked at a whopping 31bp on aggregate in October.

Meanwhile, high yield issuance volumes remained subdued in the first month of 2023, although the UDS850m raised by a duo of regional HY borrowers represented a giant step forward compared to the depressive nature of the market for much of 2022.

The Government of Mongolia, through a successful USD450m 5yr senior unsecured exercise, illustrated that investors are once again prepared to add inventory of one of the weaker rated Asian sovereigns (B3/B/B) at the right price. Perhaps even more surprisingly, Wanda Properties (Ba3-/BB) managed to raise USD400m of 3yr senior unsecured funding, albeit at an eye-catching yield of 12.375%. However, that failed to entice any other developers (even those with better credit metrics) to follow suit. That said, the deal did boast the first public offshore transaction from a Chinese property developer since unrated New World Development Company tapped the market back in June 2022. To put recent HY issuance into perspective recall that just USD410m of HY deals were priced across all of H2 2022.

Finally, Korean issuers are typically among the first out of the blocks in the new year and January 2023 was no exception, where the Export-Import Bank of Korea, POSCO, SK Hynix and Woori Bank raised a combined USD8.6bn from 10 individual transactions. The popularity of the nation's highly rated issuers (those which are particularly familiar among investors) was reflected by the massive USD58bn+ of orders that those offerings triggered at reoffer, equating to a very impressive average cover ratio of 8.15x. That compares to a still healthy average cover of 5.64x achieved overall in the APAC USD IG new issue market in January 2023.

An ex-SSA issuance of USD147.8bn narrowly missed the highest monthly estimate of USD150bn and fell just shy of last January's USD148.841bn. That placed the monthly total into third spot on the all-time most prolific January list (also behind January 2017's USD175.23bn).

January's overall (SSA-inclusive) issuance was even more impressive, with a final tally that settled at USD226.2bn for the month – with USD78.4bn of that coming from SSAs. That made the month both the sixth busiest overall issuance month on record and also the second busiest ever January (coming just shy of January 2017's USD226.28bn).

The 90 deals (157 tranches) that priced this month contracted on average by 24.1bp from IPT to reoffer, were oversubscribed by 3.5x and priced with an average NIC of +7.78bp. That compares to average compression from IPT to reoffer in 2022 of 21.8bp, cover ratio of 3.01x and average NICs of 11.24bp.

Over the past 10 years, February, which is not known as one of the busiest issuance months of the year has averaged USD95.244bn in ex-SSA issuance, although we have seen as much as USD120.07bn (2021), and as little as USD72.46bn (2013). History tells us that whenever January ex-SSA issuance tops USD120bn, which it has done six of the past seven years, February issuance has trouble reaching the century mark, something it has only done three times during the same period. In other words, volatility aside, the higher January issuance, the lower February issuance.

HY issuance saw a huge uptick and recorded the largest monthly volume since January 2022. The USD20.35bn that crossed the line did so from 23 deals over 25 individual tranches. That came about due to a triple-tranche deal from Ford Motor Credit Company LLC that kicked off the year's HY issues with a total size of USD2.75bn.