Table 1

Global Issuance Summary And Forecast (Bil. $)
	Industrials*	Financial Services	Structured finance§	U.S. public finance	International public finance	Annual total
2010	1,286.0	1,484.9	895.0	433.3	306.9	4,406.0
2011	1,340.3	1,331.3	942.4	287.7	336.3	4,238.0
2012	1,777.7	1,563.9	786.1	379.6	338.7	4,846.0
2013	1,909.0	1,500.7	803.5	334.1	316.2	4,863.5
2014	2,071.3	2,012.6	905.3	339.0	340.0	5,668.2
2015	2,026.4	1,752.8	905.0	397.7	446.0	5,527.8
2016	2,263.4	1,933.1	807.6	444.8	739.0	6,188.0
2017	2,283.5	2,104.3	901.8	448.6	541.4	6,279.7
2018	2,030.7	1,991.7	1,062.0	338.9	480.5	5,903.8
2019	2,455.1	2,230.3	1,159.0	426.3	763.0	7,033.7
2020	3,345.4	2,636.6	902.2	484.4	1,053.2	8,421.8
2020Q1	750.0	704.3	271.3	95.3	242.5	2,063.4
2021Q1	825.7	762.5	230.7	102.1	199.9	2,120.8
2021 full-year forecast, % chg, year over year (%)	(7.5)	4.0	6.0	(5.0)	(7.0)	(2.25)
2021 ranges (%)	-12 to -2	0 to 6	2 to 10	-10 to 0	-10 to 0	-6.4 to 2.2
*Includes infrastructure. §Structured finance excludes transactions that were fully retained by the originator, domestically rated Chinese issuance, and CLO resets and refinancings. Sources: Refinitiv, Green Street Advisors, and S&P Global Ratings Research.

There's Never Been A Better Time To Borrow

After skyrocketing yields froze lending markets in mid-March of last year, borrowing costs fell to historical lows in 2020 and have largely remained there in the first quarter of this year. With inflation expectations rising since the end of 2020 alongside U.S. Treasury yields, this window of opportunity to grab some of the lowest borrowing costs in history may be about to close.

Yields have been rising in secondary markets, but the trend has largely been higher-credit-quality instruments seeing larger yield increases than riskier credits--indicating market participants are either confident in the economic recovery expected this year or are merely in search of meaningful yield. That said, primary market yields globally have been falling for the most part (see charts 2-3). Alongside very low yields, maturities have been lengthening, particularly for investment-grade (rated 'BBB-' or higher) corporations in developed countries.

With borrowing costs still very favorable around the world, aggregate issuance increased in the first quarter relative to first-quarter 2020 (see chart 4).  This is impressive, considering many sectors posted very large issuance totals last year after central banks introduced liquidity facilities after lowering interest rates. Financial services had their largest quarterly total, and global nonfinancials produced their second-highest total after second-quarter 2020. Not all sectors saw growth in the first quarter though. Global structured finance and international public finance recorded double-digit declines, which makes the growth among corporates all the more impressive.

Global bond issuance in first-quarter 2021 totaled $2.1 trillion, up 2.8% relative to first-quarter 2020.  This was led by global nonfinancials, which were up just over 10%, to $826 billion. Financial services issuance expanded 8.3%, while U.S. public finance grew 7.1%. Meanwhile, international public finance declined nearly 18% relative to the first quarter of 2020, and structured finance declined about 15%. These figures include only long-term debt (maturities greater than one year) and exclude debt issued by supranational organizations. All references to investment-grade and speculative-grade debt refer to issues rated by S&P Global Ratings.

Issuance Projections

We expect global bond issuance to contract roughly 2.3% in 2021 (see chart 1).  Borrowing remained heightened in the first quarter, with some sectors hitting new quarterly highs, or coming very close. Rising Treasury yields in the U.S. and still suppressed private-sector yields likely prompted many issuers to come to market before borrowing costs rise from what are effectively their all-time lows. The economic recovery is expected to continue this year, with our economists making upward revisions to their base case for the U.S. after the recent passage of another large round of fiscal stimulus. Nonetheless, the high total of issuance in 2020 remains, in aggregate, hard to beat.

We expect nonfinancial issuance to decline 2%-12% this year.  Global nonfinancial issuers saw their second-largest quarterly total during the January-March period. A good first quarter was not unexpected given the favorable financing conditions. Financing conditions and market appetite for yield remain favorable, with yields in primary and secondary markets remaining near all-time lows. The global merger and acquisition (M&A) pipeline remains robust, rebounding after declining a year ago, which should help to limit the declines expected this year. Although, the amount of cash and marketable securities corporations hold increased in 2020, which entities could use to fund upcoming transactions.

That said, a larger-than-typical amount of the corporate issuance was for refinancing existing debt, and about two-thirds of the global nonfinancial total was attributable to issuers that had also come to market in 2020 (see chart 5). These repeat issuers represented 38% of all issuers that came to market, implying recent issuance activity was not as broad as a large nominal total would suggest. This could indicate many issuers have had their fill of new debt in recent quarters, and the current repeat issuers are getting in ahead of possible market rate increases later this year. These factors together could imply that issuance totals will moderate for the remainder of the year.

We expect leverage, which was historically high in 2020, largely because of increased debt issuance alongside contracting revenues, to decline this year in the U.S. and EMEA (see chart 6). A lot of this decline should result from revenues resuming as the economy opens up, but debt control is expected to be a contributing factor as well.

Outside of the U.S. and Europe, issuance growth in 2020 was more in line with prior years, so we expect less difficult comparisons this year. For now, we still expect the largest non-U.S./European country--China--to see issuance increase in 2021 despite some tightening in financing conditions for most nonfinancial corporates, as well as the government's increased emphasis on debt reduction. Nonetheless, the potential refinancing pipeline is very large. Roughly $1.37 trillion of bonds are coming due in 2021-2023, and the stock of outstanding corporate debt there has risen by about 14% annually in the last few years.

Financial Issuance Could Increase Modestly In 2021

After particularly strong issuance in 2020, global financial services hit a quarterly record through March ($762.5 billion). Upside potential largely stems from issuance outside of the U.S. and Europe, which could increase the global total by up to 6%, though developed markets did see strong totals in the first quarter as well.

Excess reserves U.S. banks hold with the Fed increased substantially in 2020, and this has tended to be a leading indicator of bank issuance. U.S. banks' issuance dipped to about $169 billion in the first quarter, a 6.3% decline from the first quarter of last year. That said, they are expected to post strong earnings growth for the first quarter, which has already prompted many of the larger ones to issue substantial amounts in the first weeks of April. The M&A pipeline for global financial services has also grown in recent months.

In Europe, we expect the European Central Bank's (ECB) third round of targeted longer-term refinancing operations (TLTROs) to cut into bond issuance by banks in the region by offering an attractive funding substitute. Prior rounds of TLTROs were largely considered less effective than perhaps desired, or only needed by countries with weaker credit profiles. We think that this third round of loans will be attractive to a wider swath of European banks. That said, European banks issued €120 billion in the first quarter--a healthy amount, but the lowest first-quarter total since 2014.

Outside of rising concerns over a return of inflation in the U.S., sources of market volatility on the horizon are currently few. COVID-19 vaccine rollouts have been progressing well in the U.S. and the U.K., though they've been more sluggish for the rest of Europe and much slower than anticipated in Asia.

Issuance growth from China has been very strong in recent years, with roughly $200 billion in increases in both 2019 and 2020. This equates to 46% and 35% annual growth rates for 2019 and 2020, respectively. A healthy refinancing pipeline exists, too, with over $1.3 trillion of bonds due in 2021-2023, which should support issuance in 2021.

Global Structured Finance Issuance Could See 6% Growth In 2021, Driven By The U.S.

Economic projections since the last quarter continue to support structured finance issuance, specifically in the U.S. Credit spreads tightened in the first quarter against a backdrop of increasing leveraged loan volume, ample liquidity, and pent-up demand in the U.S. Share price indices are expected to remain elevated in the near term, as are single-family home sales. However, while our economists don't expect the Fed to raise rates until 2023, the latest dot plot from the Fed leaves open some possibility for interest rates to rise in the latter half of 2021. European securitization could provide some growth for the region this year. Although, covered bond volume fell off in 2020, and we expect it to remain depressed in 2021, in part because of the ECB's third round of TLTROs.

We expect the U.S. to account for the majority of the rise in global volume in 2021. The asset-backed securities (ABS) sector is poised for growth across most subsectors. We expect the auto loan ABS sector to increase given our projection for U.S. light-vehicle sales to rise 10%-15% by year-end. The student loan ABS sector is seeing a stark increase in private student loans compared with prior years. In the first quarter, private student loan collateral accounted for half of all student loan ABS originations, the majority of which was issued toward the end of the quarter, and more is likely to come. Credit card ABS issuance in the first quarter fell relative to 2020, and we expect it to remain muted for the rest of 2021.

U.S. collateralized loan obligations (CLO) issuance originations hit their highest-ever quarterly volume. CLO spreads are now tighter than they were at the start of 2020, against a backdrop of steadily increasing leveraged loan volume. We expect CLO issuance to remain elevated throughout 2021. Turning to residential mortgage-backed securities (RMBS), originations in the first quarter were roughly in line with 2020, and we expect the pace to pick up as the year continues, against a backdrop of positive fundamentals for the sector. Commercial mortgage-backed securities (CMBS) experienced the harshest impact from COVID-19-related lockdown measures throughout 2020, pushing issuance to its lowest level in almost a decade. We expect new volume in 2021 should remain in line with 2020.

In our base case, we expect European structured finance issuance levels to remain in line with 2020. We see the potential for an increase in volume, albeit not to the pre-pandemic level. Last year was a strong one for Europe in terms of originations of securitizations, after the Simple, Transparent, and Standardized (STS) regulations became widely accepted by the market. The monetary response in the region to the pandemic is likely to suppress demand for covered bonds compared with pre-2020 levels.

In 2021, we expect new issuance outside the U.S. and Europe to remain largely unchanged from 2020. In Japan, both the ABS and RMBS sectors are expected to issue at roughly the same pace as 2020. As for Australia, which is also a primarily ABS and RMBS market, we expect issuance to remain little changed in 2021 but highly resilient in the face of low interest rates and fiscal stimulus.

U.S. Public Finance Issuance Is Set To Decline This Year From An All-Time High, And With Direct Assistance From The Federal Government

We forecast that U.S. public finance issuance for 2021 will come in around $460 billion, or about a 5% decrease from 2020's all-time high of $484 billion. The most recent fiscal stimulus includes direct assistance to states and municipalities, which was absent from prior programs in 2020. This should lessen the public sector's reliance on borrowing this year. As vaccination rates increase and economic activity resumes, tax receipts could increase, also lowering demand for issuance.

We could see some upside if the currently proposed increase in infrastructure spending includes a resumption of the Build America Bonds (BAB) program, which was a popular funding mechanism in the past. However, even if a deal can be agreed upon by Congress, it's unlikely to get moving until the end of this year, so the BAB program--if it happens--would more likely be a tailwind to 2022 issuance.

International Public Finance Is Likely To Contract As Much As 10%

In 2020, international public finance volume surpassed $1 trillion for the first time. With the need for fiscal support still strong in many regions, we expect reliance on the public sector and banking systems to continue in 2021, leading to a strong annual total of just under $1 trillion in new issuance. This sector is dominated by issuance out of China, and we expect the authorities there to make some efforts to control leverage, which could cause a contraction in issuance. In fact, through the first quarter, Chinese public finance issuance was down over 27%, though some of this decline is the result of a lack of an advance of issuers' borrowing quota, which was seen in late 2019 and helped boost early 2020 issuance totals.

U.S. Financing Conditions Remain Very Favorable

With vaccine rollouts proceeding at a healthy clip and the passage of the $1.9 trillion fiscal stimulus, markets remain upbeat, helping to keep financing conditions in the U.S. very supportive (see table 2). At the end of March, the 10-year Treasury yield reached 1.74%, up from unprecedented lows a year earlier. As of April 21, it had fallen slightly to 1.57%. By comparison, speculative-grade yields and spreads have continued to fall as investors push to find yield. In fact, this has arguably been the most favorable quarter for speculative-grade issuers to come to market: U.S. speculative-grade bonds and leveraged loans both saw record issuance totals. It is unusual to see both fixed- and floating-rate debt surge at the same time, and in both markets the share of funds used for refinancing purposes was high.

Inflation expectations are still elevated, as reflected in the five-year break-even inflation rate, which reached 2.42% on April 22. This is lower than the high of 2.57% a week earlier but is still at a 10-year high point. If inflation does start to pick up and translate into higher borrowing costs, that could pose a headwind for financing conditions later this year. However, we do not believe that inflation will reach high levels or that the Fed will raise rates until 2023.

Borrowing costs have started to increase modestly for the higher rating categories of corporate debt, but this has largely not happened for speculative-grade issuers. Once volatile commercial paper yields have stabilized and are near zero. Distressed debt in the speculative-grade bond and leveraged loan segments is now back to multiyear lows, with the S&P Global Ratings distress ratio hitting 3.4% in March--a 14-year low--while covenants on leveraged loans remain few.

Table 2

Indicators Of Financing Conditions: U.S.
	Restrictive	Neutral	Supportive	2021*	2020*	2019*
Currency component of M1 plus demand deposits (% change, year over year)*			x	69.6	6.3	4.0
M2 money supply (% change, year over year)*			x	27.1	6.8	4.1
Triparty repo market - size of collateral base (bil. $)			x	2,259.9	2,703.9	2,228.2
Bank reserve balances maintained with Federal Reserve (bil. $)*			x	3,345.9	1,726.9	1,713.7
Three-month nonfinancial commercial paper yields (%)			x	0.1	1.5	2.5
Three-month financial commercial paper yields (%)			x	0.2	2.4	2.4
10-year Treasury yields (%)			x	1.7	0.7	2.4
Yield curve (10-year minus three-month) (bps)			x	171.0	59.0	1.0
Yield-to-maturity of new corporate issues rated 'BBB' (%)			x	2.3	3.8	4.1
Yield-to-maturity of new corporate issues rated 'B' (%)			x	5.9	7.8	8.8
10-year 'BBB' rated secondary market industrial yields (%)			x	3.0	4.4	4.3
Five-year 'B' rated secondary market industrial yields (%)			x	5.3	13.9	7.4
10-year investment-grade corporate spreads (bps)			x	109.9	293.0	149.4
Five-year speculative-grade corporate spreads (bps)			x	390.8	850.2	385.2
Underpriced speculative-grade corporate bond tranches, 12-month average (%)			x	7.9	10.7	17.4
Fed Lending Survey For Large And Medium Sized Firms§		x		5.5	0.0	2.8
S&P Global Rating corporate bond distress ratio (%)			x	3.4	35.2	7.0
S&P LSTA Index distress ratio (%)			x	2.1	31.1	3.2
New-issue first-lien covenant-lite loan volume (% of total, rolling three-month average)			x	86.7	85.1	77.0
New-issue first-lien spreads (pro rata)		x		331.9	157.5	303.4
New-issue first-lien spreads (institutional)		x		380.4	418.8	403.6
S&P 500 market capitalization (% change, year over year)			x	56.9	(9.3)	5.0
Interest burden (%)†			x	7.7	7.5	7.7
Note: Data through March 31, 2021. *Through Feb. 28, 2021. §Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices For Large And Medium-Sized Firms, through fourth-quarter 2020. †Interest burden as of Dec. 31, 2020. Sources: Economics & Country Risk from IHS Markit; Federal Reserve Bank of New York; LCD, an offering of S&P Global Market Intelligence; and S&P Global Ratings Research.

Strong first-quarter 2021 U.S. corporate issuance was led by issues rated 'BBB+' or lower

Rated U.S. corporate issuance surged in first-quarter 2021 to $447.1 billion, after slowing in the third and fourth quarters of last year, and nearly reached the record for first-quarter issuance set in 2020. Issuance accelerated in March as U.S. Treasury yields continued to rise, with the 10-year yield reaching as high as 1.77% after ending 2020 at 0.93%.

Borrowers were eager to lock in low financing costs, but demand for credit was also strong amid investors' search for yield. Speculative-grade issuance totaled $116.1 billion, 104% higher than first-quarter 2020 and nearly matching the record for quarterly issuance that was set in second-quarter 2020. Issuance was strong in every speculative-grade category. The $51.1 billion of issuance in the 'B' category was an all-time high for quarterly issuance, and the $14.6 billion of 'CCC' to 'C' issuance nearly matched the record set in fourth-quarter 2007.

The bulk of issuance was in the 'BBB' category, which accounted for 42% of all rated first-quarter issuance. Total investment-grade issuance reached $331 billion, 18% lower than first-quarter 2020. However, the year-ago level was the record for investment-grade quarterly issuance before even stronger issuance in second-quarter 2020.

Rated nonfinancial issuance totaled $305.1 billion, 3% lower than first-quarter 2020. However, the year-ago level was also the record for quarterly issuance prior to second-quarter 2020. The following sectors accounted for nearly two-thirds of all nonfinancial issuance:

• High technology, $64.4 billion;
• Telecommunications, $41.1 billion;
• Utility, $35.4 billion;
• Consumer products, $32.5 billion; and
• Retail/restaurants, $23.5 billion.

Rated financial issuance totaled $142 billion, 4% less than first-quarter 2020.

Verizon Communications Inc. topped the list of issuers in the first quarter (see table 3). It issued a nine-part senior unsecured note offering that totaled $24.9 billion on March 11, a three-part senior unsecured note offering totaling $3.3 billion on March 15, a five-part senior unsecured note offering totaling $2.2 billion on March 16, and a two-part senior unsecured note offering totaling $759 million on March 17. The proceeds are expected to be used for general purposes, which may include the completion of announced acquisitions, acquisition of spectrum licenses, and the repayment of outstanding debt. The outlook on Verizon Communications Inc. is stable.

Table 3

Largest U.S. Corporate Bond Issuers: First-Quarter 2021*
Issuer	Sector	Mil. $
Verizon Communications Inc.	Telecommunications	31,080.5
Goldman Sachs Group Inc.	Banks and brokers	19,937.8
Oracle Corp.	High technology	14,964.7
Apple Inc.	High technology	13,960.5
JPMorgan Chase & Co.	Banks and brokers	11,796.8
7-Eleven Inc.	Retail/restaurants	10,934.6
Broadcom Inc	High technology	9,970.8
Boeing Co.	Aerospace and defense	9,825.0
Morgan Stanley	Banks and brokers	8,352.2
Bank of America Corp.	Banks and brokers	7,769.8
T-Mobile US Inc.	Telecommunications	6,800.0
American Airlines Inc.	Transportation	6,500.0
AT&T Inc.	Telecommunications	5,992.9
Fidelity National Information Services Inc.	High technology	5,480.5
Altria Group Inc.	Consumer products	5,472.0
*Includes issuance from Bermuda and the Cayman Islands. Sources: Refinitiv and S&P Global Ratings Research.

U.S. leveraged loans had a historically strong haul in the first quarter

U.S. leveraged loan issuance rocketed in the first quarter of 2021 as the specter of rising Treasury rates helped steer investors back toward floating-rate debt and as optimism grew around the COVID-19 vaccination rollout. The primary loan market showed the hallmarks of the risk-on environment, as opportunistic issuance metrics climbed to heights not seen in years (see chart 8).

Institutional loan volume surged to $180.8 billion in the first quarter, the highest quarterly volume of all time, exceeding the prior record of $171.4 billion in the first quarter of 2017, according to LCD (see table 4).

On the demand side, loan issuance was supported by a heated CLO market and resurgent inflows into retail loan funds (see chart 9). CLOs, the largest consumer of leveraged loans, recorded a surge in total issuance to $39.2 billion, excluding refinancings and resets. It is the strongest start to a year since the global financial crisis and the highest quarterly issuance in the CLO 2.0 era. Meanwhile, cash flows into loan mutual funds and exchange-traded funds swelled to roughly $13 billion in the quarter through March 24, according to Lipper, the largest amount since the first quarter of 2017. These combine for $52.4 billion of demand during the period, the most since LCD began tracking this data 20 years ago.

As issuers clamored to market to take advantage of the favorable conditions, refinancings took center stage (see chart 10). A total of $79.4 billion of loans were issued to refinance debt, or 44% of total supply in the quarter. That is the highest by dollar volume in eight years and the second highest of all time (behind $92.9 billion in the first quarter of 2013).

M&A and LBO issuance totaled $73.1 billion, a 47% gain from the first quarter last year and the highest total since the second quarter of 2018 (see chart 11). Drilling down, LBO volume alone hit a 2.5-year high of $37.5 billion, with some of the larger deals coming from CoreLogic ($4 billion), RealPage Inc. ($2.75 billion), Triton Water Holdings Inc. ($2.55 billion), and Endure Digital ($2.4 billion). Aside from new LBOs, acquisition financing from private equity-backed companies added another $20.0 billion, the highest since the third quarter of 2018, while deals backing M&A from issuers not owned by private equity firms were at a four-quarter high of $15.7 billion.

The hot start to 2021 also opened the door for sponsor-backed companies to issue dividends. New-issue volume for companies owned by private equity firms shot to $18.8 billion, the highest since the second quarter of 2013. Dividend recap volume was $13.4 billion in the third quarter of 2020, and it dipped slightly to $12.75 billion in the fourth quarter.

As such issuer-friendly conditions took hold in the first quarter, repricings picked up (see chart 12). A total of $148.5 billion of institutional term loans were repriced during the quarter, the most in four years. (Note that repricings do not count as new money transactions and are thus not included in new issue volume.)

Further evidence of the supply-demand imbalance, and an indication of a rosier investor outlook, was the greater acceptance for new issues from riskier, 'B-' rated loan borrowers. A record-high $67.6 billion was issued in the first quarter from borrowers rated 'B-' on at least one side--representing 37% of total issuance during the quarter. For any full year, the share of comparable 'B-' issuance has never been above 36% (2020). Looking at the full 'B' rating category, volume set a record $129.9 billion, or 72% of total volume.

Meanwhile, the borrowing cost on these loans fell to the lowest level since the global financial crisis. The new-issue yield to maturity on term loans--which incorporates the spread over LIBOR, three-month LIBOR (or the LIBOR floor), and original issue discount--to 'B-' rated corporates dipped to 4.81% in January, its first time below 5% in over 10 years, and held at 4.82% through February before rising to 5.34% in March.

U.S. public finance issuance got off to a steady start in 2021

U.S. municipal bond issuance in the first quarter of 2021 was $102 billion (see chart 13), down from $129 billion in the fourth quarter of last year but up from $95 billion in the first quarter of 2020. Issuance increased in every month, from a low of $26.4 billion in January, $34 billion in February, and $41.6 billion in March. Issuance in the first quarter averaged $87 over the last 10 years, and 2020 was the second highest in that period.

Breaking out issuance into components, new money issuance rose to 67% of all issuance in the first quarter, compared with 56% for all of last year (see chart 14). Refunding has fallen in terms of percentages, to 23% from 31% last year, while mixed used issuance was 10%, down slightly from 12% from last year.

There were several large individual issues in March--the NYS Dorm Authority led with a $2.2 billion issuance, followed by California, with a $1.8 billion general obligation issue, and the state of Illinois, with a general obligation issue of $1.2 billion. New York had two other issues of over a billion as well.

Table 5

Largest U.S. Municipal Issues: March 2021
Issuer	Mil. $	Date
NYS Dorm Authority	2,163.1	3/19/2021
California	1,842.1	3/11/2021
Illinois	1,258.0	3/17/2021
California Housing Finance Agcy	1,045.3	3/16/2021
New York City Transitional Finance Authority	1,001.1	3/24/2021
New York City	900.0	3/4/2021
Missouri Hlth & Educl Facs Auth	796.1	3/19/2021
Maryland Transportation Auth	746.0	3/24/2021
Bay Area Toll Authority	710.9	3/2/2021
California St Public Works Board	695.5	3/23/2021
Sources: Refinitiv and S&P Global Ratings Research.

For the year to date, California has issued the most debt so far, at $20 billion, up 75% compared with this time last year. New York is second, at $13.8 billion, up only 28% from last year (see table 6).

Table 6

Top 10 States By Bond Sales, March
	--2021--			--2020--
State	Rank	Volume YTD (mil.)	March volume (mil.)	Rank	Volume (mil.)	Change from previous year (%)
California	1	20,038.6	11,092.2	2	11,481.3	74.5
New York	2	13,807.6	7,599.6	3	10,765.2	28.3
Texas	3	9,687.6	3,465.1	1	12,596.5	(23.1)
Florida	4	3,839.1	1,075.8	8	3,014.3	27.4
Pennsylvania	5	3,535.0	1,708.9	13	1,736.4	103.6
Massachusetts	6	3,317.6	1,185.5	6	3,695.3	(10.2)
Colorado	7	3,274.3	533.7	35	537.2	509.5
Ohio	8	3,112.0	1,448.6	18	1,468.4	111.9
New Jersey	9	2,960.3	987.5	15	1,601.4	84.9
Georgia	10	2,819.6	680.2	4	9,391.4	(70.0)
Sources: Refinitiv and S&P Global Ratings Research.

U.S. structured finance issuance was up a solid 8% in the first quarter

U.S. structured finance issuance hit the ground running in the first quarter of 2021, following a muted 2020. Total U.S. issuance had one of its strongest first quarters over the past decade, increasing 8% compared with first-quarter 2020. However, the disparity in issuance among U.S. structured finance subsectors in 2020 due to the global disruption stemming from COVID-19 carried over into 2021.

U.S. new issue CLO volume rose 54% in the first quarter of 2021 to $36 billion, the highest for any first quarter in the past decade. Spreads began to tighten in the asset class toward the end of 2020 amid pent-up demand, leading to an uptick in new origins that continued into 2021. Leveraged loans, a leading indicator for CLO new issue volume, have been steadily increasing since November 2020, leaving room to run for issuance growth this year. CLO refinancing and resets, which we do not count in our new issue volume aggregations globally or in U.S., have outpaced new issue CLO volume, rising 65% year over year to $37 billion in the first quarter.

U.S. ABS issuance rose 12% in the first quarter to $56 billion (see chart 15), the only U.S. structured finance subsector to record a rise outside of the CLOs. Auto ABS once again led the way in terms of volume in the first quarter, rising 8% year over year. Outside of auto, more esoteric forms of ABS have also led to gains in the first quarter, up 13% year over year. Student loan ABS fell 17%, while credit card ABS took a greater hit, down 27% in the first quarter.

U.S. RMBS originations fell 3% in the first quarter to $25 billion. However, despite the decline, the total remains one of the highest for any first quarter in the past decade. RMBS issuance started 2021 at a slow pace, with just a handful of deals in January. As the quarter wore on, volume began to increase once again. The majority of RMBS originated in the first quarter consisted primarily of prime collateral, as well as nonperforming loans and credit risk transfers. Persistent demand for new and existing home sales is expected to remain elevated throughout 2021, keeping the pace of new originations.

The U.S. CMBS sector has continued to bear the brunt of declines in issuance in the first quarter of 2021, down 45% year over year to $11 billion, the lowest for any first quarter since 2012. The sector was the hardest hit by the pandemic lockdown across the U.S. As social-distancing measures have persisted into 2021, many commercial areas are still closed and many Americans are adjusted to remote working. However, volume did begin to pick up in March. The sector may see a further uptick in volume throughout the year and as vaccination levels pick up.

Financing Conditions In Europe Are Still Favorable Despite Slower Recovery

Financing conditions in Europe remained largely favorable through the first quarter (see table 7). Speculative-grade corporate bond spreads are now below where they began 2020, falling under 300 basis points (bps) in April. The ECB's senior loan officer survey has been showing net tightening of standards for firms for several quarters, but the most recent survey (for first-quarter 2021) showed some relative loosening of standards, though still in net tightening territory. Overall, we expect the European economy to rebound in 2021, but at a slower pace than the U.S. The continuation of favorable financing conditions remains a key component of this recovery.

For most of the last three years, almost all leveraged loans have been covenant-lite. Spreads on leveraged loans have remained stable--moderately higher than all-time lows--while distressed credits remain very rare at less than 2%.

In contrast to the U.S., inflation expectations in Europe remain muted. The ECB Survey of Professional Forecasters shows five-year inflation expectations at only 1.7%--effectively unchanged since early 2019. Thus far it appears that the noticeable rise in U.S. Treasury yields has not spread to most European sovereign yields. The U.K. is an exception, but most of the "core" European countries' 10-year government yields are still near, or below, zero. Favorable lending conditions are supported by the loose monetary policies of the ECB, which has been engaging in corporate and public-sector bond purchases since the pandemic started, as well as extending a third round of its TLTROs to stimulate lending.

Table 7

Indicators Of Financing Conditions: Europe
	Restrictive	Neutral	Supportive	2021	2020	2019
M1 money supply (% change year over year)*			x	15.4	8.3	6.8
M2 money supply (% change year over year)*			x	11.4	5.8	4.7
Three-month euro-dollar deposit rates (%)					1.1	2.6
ECB Lending Survey of Large Companies§	x			16.2	0.4	(5.1)
Yield-to-maturity of new corporate issues rated 'A' (%)			x	1.4	2.0	1.6
Yield-to-maturity of new corporate issues rated 'B' (%)			x	5.1		12.0
European high-yield option-adjusted spread (%)†			x	3.1	7.5	3.9
Underpriced speculative-grade corporate bond tranches, 12-month average (%)		x		29.7	16.5	28.9
Major gov. interest rates on 10-year debt			x
S&P LCD European Leveraged Loan Index Distress Ratio (%)			x	1.6	35.6	1.4
Rolling three-month average of all new-issue spreads: RC/TLA (Euribor + bps)					290.0
Rolling three-month average of all new-issue spreads: TLB/TLC (Euribor + bps)		x		379.1	355.5	405.6
Covenant-lite institutional volume: share of institutional debt (%, rolling three-month average)			x	97.7	99.0	97.3
Note: Data through March 31, 2021. *Through Feb. 28, 2021. §European Central Bank Euro Area Bank Lending Survey for Large Firms, fourth-quarter 2020. †ICE BofA Euro High Yield Index Option-Adjusted Spread, retrieved from FRED, Federal Reserve Bank of St. Louis. Sources: Economics & Country Risk from IHS Markit; ECB; LCD, an offering of S&P Global Market Intelligence; and S&P Global Ratings Research.

Strong first-quarter 2021 European corporate issuance, led by the 'A' and 'BBB' categories

Rated European corporate issuance picked up in first-quarter 2021, totaling €258.3 billion, after it slowed in the third and fourth quarters of last year. Issuance was 15% higher than first-quarter 2020, with the bulk of issuance in the 'A' and 'BBB' categories, accounting for 32% and 36%, respectively.

Like the U.S., there was strong investor demand for credit. Speculative-grade issuance totaled €54.7 billion, 75% higher than first-quarter 2020 and the most since second-quarter 2014. Issuance was strong in every speculative-grade category. The €33.6 billion of issuance in the 'BB' category nearly matched the record for quarterly issuance set in first-quarter 2015.

Investment-grade issuance totaled €203.6 billion, 5% higher than first-quarter 2020. Issuance was strong in the 'A' and 'BBB' categories, at €81.9 billion and €93.2 billion, respectively.

Financial issuers accounted for the most rated issuance during the first quarter, with €172 billion, 29% higher than first-quarter 2020. Rated nonfinancial issuance totaled €86.4 billion, 6% lower than first-quarter 2020. The following sectors together accounted for three-fifths of all nonfinancial issuance:

• Utility, €14.7 billion;
• High technology, €11.5 billion;
• Transportation, €10.4 billion;
• Homebuilders/real estate, €9.7 billion; and
• Telecommunications, €6.8 billion.

BNP Paribas SA and Siemens NV topped the list of issuers in the first quarter with €8.3 billion each. BNP Paribas has 17 note offerings in the first quarter. The outlook on BNP Paribas SA is negative. Siemens NV issued a seven-part senior unsecured note offering on March 2. The outlook on parent Siemens AG is negative.

Table 8

Largest European Corporate Bond Issuers: First-Quarter 2021
Issuer	Country	Sector	Mil. €
BNP Paribas SA	France	Banks and brokers	8,329.8
Siemens NV	Netherlands	High technology	8,305.0
EFSF	Luxembourg	Financial institutions	7,103.8
UBS AG London	U.K.	Banks and brokers	6,388.3
BPCE SA	France	Banks and brokers	5,977.5
Societe Generale SA	France	Banks and brokers	4,990.4
Standard Chartered PLC	U.K.	Banks and brokers	4,877.5
ING Groep NV	Netherlands	Banks and brokers	4,299.9
Deutsche Bank AG	Germany	Banks and brokers	4,278.8
Banco Santander S.A.	Spain	Banks and brokers	4,161.3
Bayer AG	Germany	Chemicals, packaging, and environmental services	3,976.6
LSEGA Financing	U.K.	Financial institutions	3,805.9
UBS Group AG	Switzerland	Banks and brokers	3,796.4
Dexia Credit Local SA	France	Banks and brokers	3,642.0
Kuntarahoitus Oyj	Finland	Banks and brokers	3,575.2
Sources: Refinitiv and S&P Global Ratings Research.

European leveraged loans also had a very strong start to 2021

In the first quarter, the primary loan market recorded its second-largest amount of institutional loan volume ever (see chart 17). An array of issuers had access to a relatively cheap cost of financing. Total loan volume was €40.5 billion in the first quarter of this year, making it the third-busiest quarter in the European loan market, behind €69.1 billion in second-quarter 2007 and €49.4 billion in first-quarter 2007. The year-to-date total loan volume is already 56% ahead of where it was this time last year, even after very strong issuance throughout January and February 2020, before the COVID-19 pandemic hit markets in March.

A rock-solid base of CLO buyers is underpinning the market. "This year started with huge pent-up demand from CLOs so there was a certain amount of catch-up in the early months," a fund manager said. This demand came on the back of a glut of CLO pricings in the closing months of 2020, with 22 vehicles printing in the fourth quarter, according to LCD--the highest quarterly number in the CLO 2.0 era (see chart 18). Activity has continued apace this year, with 20 vehicles printing in the first quarter of 2021.

Net CLO issuance on a rolling-three-month basis, for example, has been larger than net loan supply every month since June last year, apart from January 2021 (see chart 19). And even with the surge in issuance in the first quarter, the supply/demand imbalance grew to €7 billion for the three months through March.

This type of action has kept conditions tight and pushed average pricing on loans close to levels last seen before the pandemic hit (see chart 20). On average, euro-denominated 'B' TLB (term loan B) pricing hit a 3.92% yield to maturity on a rolling-three-month basis at the end of first-quarter 2021, according to LCD, from 4.39% at the end of 2020. Average spreads ended the quarter at 380 bps for the rolling three months through March, compared with 409 bps at the end of last year. There continues to be a differentiation between risk levels, with spreads for a 'B'/'B2' credit about 350 bps over EURIBOR and for 'B-'/'B3' and lower-rated credits around EURIBOR plus 375 bps-400 bps and beyond.

A good deal of the first quarter's leveraged loan supply has come through refinancings or recapitalizations, meaning the actual level of new money has not been as high as primary volume suggests (see chart 21). M&A-related supply was only 39.2% of total loan volume in the first quarter, leaving the balance to mainly opportunistic transactions. Indeed, some of the year's most eagerly awaited new deals have disappointed in terms of paper delivered. For example, the carve-out of British supermarket operator ASDA Group Ltd. by the Issa brothers and TDR only brought an €840 million term loan, with the buyers relying on the sterling high-yield market to do most of the heavy lifting for its £3.5 billion-equivalent drawn-debt requirement.

Market participants say that borrowers have been able to take advantage of the rush for loans to push through increasingly punchy terms other than just favorable pricing. These moves have reversed much of the gains of the past year around documentation, which most now agree is as loose as it has ever been.

Overall, leverage rose to 5.56x debt to EBITDA for European deals in the first quarter, compared with 5.36x at the end of 2020. This is the highest it has been since 2007, when average leverage rose to 5.95x debt to EBITDA. For the quarter, overall leverage is very close to total leverage for sponsored transactions at 5.52x debt to EBITDA, though this measure has fallen since the end of 2020. For full-year 2020, sponsored transactions on average had a ratio of 5.85x debt to EBITDA, in part elevated by the prevalence of add-on facilities to existing deal structures.

European structured finance volume was down 24% in the first quarter

European structured finance issuance in the first quarter of 2021 fell 24% year over year to $71 billion, mainly because of declines in covered bond issuance, offsetting gains in securitizations (see chart 22). In the latter half of 2020, securitizations began to rise--against a backdrop of depleting covered bond originations--and this continued in the first quarter of 2021.

Securitization in Europe rose 4% year over year in the first quarter to $35 billion, the highest volume for any first quarter since 2012. The RMBS sector was the strongest in terms of volume, led primarily by originations out of the U.K., where RMBS originations increased 49% year over year. The only other country to report RMBS issuance in the first quarter was the Netherlands. The underlying collateral consisted mainly of prime loans. European ABS increased 57% in the first quarter, consisting primarily of auto and esoteric collateral our of Spain and Italy. European CLO volume increased 37% in the first quarter. Similar to the U.S., CLO refinancing and reset volume in Europe also increased markedly, rising to $16 billion, the most for any first quarter in the past five years. European CMBS volume fell 12% year over year in the first quarter but remains in line with historical first-quarter volume.

Issuance of covered bonds in Europe fell 39% in the first quarter, totaling just $37 billion. Originations have depleted steadily as liquidity injections from central banks--in response to the economic fallout from the pandemic--guided investors toward cheaper funding alternatives elsewhere. In the U.K., volume fell 85% in the first quarter, while Germany, which normally issues covered bonds at higher levels than its European counterparts, fell 48%.

Emerging Market Issuance Dominated By Unrated Debt From China

Credit spreads in all emerging market regions continued to tighten in the first quarter (see chart 23) as dollar-denominated issuance reached a quarterly record high of $117.9 billion. Emerging Asia (excluding China) led all regions, with $51.9 billion of dollar-denominated issuance, 37% higher than first-quarter 2020 and a record for quarterly issuance in the region. China, Latin America, and EEMEA (Eastern Europe, the Middle East, and Africa) dollar-denominated issuance totaled $33.5 billion, $17.4 billion, and $15.2 billion, respectively, which was 14% higher, 35% lower, and 58% higher than first-quarter 2020.

Rated emerging market corporate bond issuance in the first quarter totaled $65.8 billion, 2% higher than first-quarter 2020 (see chart 24). Investment-grade corporate issuance totaled $44.8 billion, 15% higher than first-quarter 2020. Speculative-grade issuance was $21.1 billion, 17% lower than first-quarter 2020, though the-year ago level is the record for quarterly issuance. Issuance was strong in every rating category except for 'CCC' to 'C' during the first quarter.

Most corporate bond issuance in emerging markets is unrated. In the first quarter, 86% of issuance was unrated by S&P Global Ratings, and 72% was unrated debt from China.

All emerging market corporate bond issuance in the first quarter totaled $471.4 billion, 9% higher than first-quarter 2020 and a record for first-quarter issuance (see chart 25). China led all regions with $350.8 billion, 12% higher than first-quarter 2020. Emerging Asia (excluding China), EEMEA, and Latin America issuance totaled $79 billion, $22.7 billion, and $18.9 billion, respectively, which was 19% higher, 30% higher, and 45% lower than first-quarter 2020.

Alibaba Group Holding Ltd. topped the list of entities that issued rated bonds in the first quarter (see table 9). It issued a four-part senior unsecured note offering totaling $5 billion on Feb. 4. It will use the proceeds for general corporate purposes and sustainability projects. The outlook on Alibaba Group Holding is stable.

After topping the list of emerging market corporate issuers overall (both rated and unrated) in fourth-quarter 2020, China Development Bank Corp. once again was the largest issuer in the first quarter (see table 10). China Development Bank Corp. issued a total of $17 billion of senior unsecured notes across 13 bond offerings during the first quarter.

Table 9

Largest Emerging Markets Corporate Bond Issuers: First-Quarter 2021 Rated Issuance
Issuer	Country	Sector	Mil. $
Alibaba Group Holding Ltd.	China	Retail/restaurants	4,989.7
Korea Development Bank	South Korea	Banks and brokers	2,694.7
SK Hynix Inc.	South Korea	High technology	2,487.5
CFE	Mexico	Utility	2,000.0
OOO Gazprom Kapital	Russian Federation	Banks and brokers	2,000.0
China Cinda (2020) I Management Ltd.	Hong Kong	Banks and brokers	1,983.7
First Abu Dhabi Bank P.J.S.C.	United Arab Emirates	Banks and brokers	1,765.9
CEMEX S.A.B. de C.V.	Mexico	Forest products and building materials	1,750.0
KEXIM	South Korea	Banks and brokers	1,723.8
Sunac China Holdings Ltd.	China	Homebuilders/real estate cos.	1,654.1
Airport Authority Hong Kong	Hong Kong	Transportation	1,490.5
Mdgh Gmtn (Rsc) Ltd.	United Arab Emirates	Financial institutions	1,310.5
Hong Kong Mortgage Corp. Ltd.	Hong Kong	Financial institutions	1,290.4
Bk Of China Ltd-Hong Kong Br	Hong Kong	Banks and brokers	1,275.5
GC Treasury Center Co. Ltd.	Thailand	Financial institutions	1,232
Sources: Refinitiv and S&P Global Ratings Research.

Table 10

Largest Emerging Markets Corporate Bond Issuers: All First-Quarter 2021 Issuance
Issuer	Country	Sector	Mil. $
China Development Bank Corp.	China	Banks and brokers	17,007.5
China State Railway Grp Co.	China	Transportation	10,786.4
The Export-Import Bank of China	China	Banks and brokers	9,357.5
Shanghai Pudong Dvlp Bk	China	Banks and brokers	9,220.8
China Everbright Bank Co. Ltd.	China	Banks and brokers	6,148.7
Bank of Communications Co. Ltd.	China	Banks and brokers	6,105.2
Bank Of China Ltd.	China	Banks and brokers	5,389.1
Alibaba Group Holding Ltd.	China	Retail/restaurants	4,989.7
Ind & Coml Bk of China Ltd.	China	Banks and brokers	4,634.2
Postal Savings Bank of China Co. Ltd.	China	Banks and brokers	4,611.7
Hua Xia Bank Co. Ltd.	China	Banks and brokers	4,158.2
Agricultural Development Bank of China	China	Banks and brokers	4,122.5
China Merchants Securities Co. Ltd.	China	Banks and brokers	3,642.8
AIIB	China	Banks and brokers	3,301.4
Bank of Shanghai Co. Ltd.	China	Banks and brokers	3,096.2
Sources: Refinitiv and S&P Global Ratings Research.

International Public Finance Got Off To A Weak Start This Year

Bond issuance from the international public finance sector in the first quarter totaled $200 billion, down 17.5% from the first quarter of 2020. Chinese issuers tend to dominate the global total, but their issuance was down roughly 27% in the first quarter. Although, we expect the pace of issuance there to pick up as the year goes on.

Data on non-U.S. public finance volume is not reliable for determining the true size of borrowing, but the numbers can suggest major trends. The four years prior to 2020 recorded the highest volume ever in international public finance, averaging over $631 billion annually, and 2020 exceeded the $1 trillion mark for the first time. As with other sectors, 2020 presents a difficult total to match.

Structured Finance Issuance Outside The U.S. And Europe Was Down 46% In The First Quarter

Securitizations and covered bonds outside the U.S. and Europe totaled just $34 billion in the first quarter of 2021, a 46% decline from first-quarter 2020. Covered bonds took a significant hit, down over 50% in the first quarter. Securitizations fell 20% to $32 billion--despite the decline, first-quarter volume was the second-highest of any first quarter in the past decade, behind the first quarter of 2020. Japan increased securitizations 27% in the first quarter, while Australia saw a 32% increase. Covered bonds suffered the greatest decline in Canada, where volume fell 90% in the first quarter of 2021.

Related Research

• Global Economic Outlook Q2 2021: The Recovery Gains Traction As Unevenness Abounds, March 31, 2021
• Economic Outlook Emerging Markets Q2 2021: Tailwinds From Stronger Global Growth, But Several Challenges On The Radar, March 30, 2021
• Economic Outlook Europe Q2 2021: The Path To A Strong Restart, March 25, 2021
• Economic Outlook Asia-Pacific Q2 2021: Three-Speed Recovery Will Benefit From Faster Global Growth, March 24, 2021
• Economic Outlook U.S. Q2 2021: Let The Good Times Roll, March 24, 2021
• Orderly Global Reflation Will Support The Recovery From COVID-19, March 22, 2021

Ratings Performance Analytics:	Nick W Kraemer, FRM, New York + 1 (212) 438 1698; nick.kraemer@spglobal.com
	Zev R Gurwitz, New York + 1 (212) 438 7128; zev.gurwitz@spglobal.com
	Kirsten R Mccabe, New York + 1 (212) 438 3196; kirsten.mccabe@spglobal.com
	Jon Palmer, CFA, New York; jon.palmer@spglobal.com
Director, LCD:	Taron Wade, London + 44 20 7176 3661; Taron.Wade@spglobal.com