S&P Global Ratings Credit Research & Insights expects global bond issuance to fall marginally in 2023, by 1.5% to roughly $7.2 trillion (see chart 1 and table 1).   Financial markets displayed remarkable resilience in the face of numerous potential stressors in the second quarter. This resilience helped spur dealmaking and improve issuance comparisons for most sectors, though some faced challenges through midyear. In particular, structured finance and international public finance (IPF) both had double-digit declines.

All sectors outside of nonfinancial corporates are still seeing lower first-half totals relative to 2022, but the over 20% shortfalls from the first quarter are largely past. We expect some sectors to still face declines for the year, others to see similar totals to 2022, and nonfinancial corporates to post an increase.

Chart 1

Table 1

Markets Have Largely Shrugged Off First-Half Challenges

This year, markets have had no shortage of stressors that could have derailed market sentiment. These include the bank sector turbulence following the fall of Silicon Valley Bank, a prolonged debt ceiling debate in the U.S. (which prompted some of the widest CDS pricing and short-term Treasury rate volatility in years), and a short-lived weekend mutiny within the Russian military. All seemingly resolved themselves without much ultimate impact on market sentiment.

Regarding the bank sector, equity markets reflect a substantial amount of lingering caution about U.S. regional banks (see chart 2). But the broader S&P 500 index has shown robust growth this year. And even if that growth might be attributable mainly to a few, very large companies, the global financials broad market index (BMI) has also rebounded into positive territory--implying sentiment toward the larger, global banking sector remains positive.

Chart 2

Secondary markets reflect relative optimism.  Bond spreads across the globe have recently fallen to (or near) their lowest levels of the year (see chart 3). The relatively uneventful passage of time in the second quarter in terms of bank failures helped support further good news as market spreads tightened again after the June 6 resolution to the U.S. debt ceiling. Some of this tightening is likely technical, given the reduced supply of high-yield bonds as a result of low 2022 issuance combined with recent upgrades of some into investment grade.

But an improved economic outlook following resilient, though slowing, global growth is raising hopes for a soft landing by central banks. Inflation readings are slowly improving, and the Fed's pause at its June meeting also contributed to the current optimism. However, bond markets may be getting ahead of themselves. Our estimated speculative-grade bond spreads in the U.S. and Europe are both coming in at roughly 200 basis points above current readings.

Chart 3

Despite falling spreads and equity market expansion, lenders are still showing some caution in primary bond markets (see chart 4).  Among rated bond issuance, the investment-grade segment has accounted for 89% so far this year--higher than the annual average of about 84% between 2015 and 2022. And speculative-grade bond issuance volume is up nearly 44% over last year's decade-low midyear total, though the majority has been from the 'BB' category. Only $2.3 billion came to market through midyear from the 'CCC'/'C' category, which is easily the lowest midyear total since 2009. And in terms of the use of proceeds, a large proportion of the total so far in 2023 has been used for refinancing, rather than for growth.

In some cases, loan issuers have turned to the high-yield market to refinance maturing leveraged loans. While this might benefit speculative-grade bond issuance, it is more likely that combined high-yield bond and leveraged loan issuance will remain modest this year.

Chart 4

Longer-term interest rates have stabilized.  Markets may be showing signs of cautious optimism from the vantage point of credit quality, and some fundamental factors should support second-half issuance. First is that long-term interest rates have largely stabilized since last September, despite continued tightening by central banks (see chart 5). This seems to imply the expected hikes will have minimal, if any, impact on long-term interest rates. Conversely, short-term rates have continued to rise, in step with policy rate increases.

Rates are going to remain higher than in 2021, but the relative stability of borrowing costs over the last three quarters for longer-dated debt has arguably helped issuance start to rebound this year. Given our economists are calling for modest, if slowing, growth ahead (neither a rapid expansion or recession), stable long-term rates are also reflecting market expectations for inflation to get back under control.

Chart 5

Weak second-half 2022 totals make for an easy hurdle for the remainder of the year (see chart 6).   This is most noticeable for nonfinancial corporates, whose volume in the second half of 2022 was the lowest second-half total in the past several years. In aggregate, only about $3 trillion came to market in the second half of 2022, well lower than the comparable periods for the prior three years, and even lower than 2017.

Chart 6

We are still expecting many sectors to see either flat growth or declines for 2023. But the shortfalls through midyear are largely expected to be reduced, while the existing growth in nonfinancial corporates expands further.

Upside potential remains.  This may be a year of subdued issuance totals compared with the pandemic bonanzas of 2020 and 2021. But our baseline projections, if realized, would push the global total beyond the then record-setting 2019 sum.

Our economists are expecting the resilient growth thus far in 2023 to continue, with a potential slowdown into 2024. Headline inflation readings are falling around the globe and may yet pull core inflation down as well. For borrowers, higher rates will become unavoidable, but as time goes on, so will even larger refinancing needs as we approach the fairly significant 2025 and 2026 totals.

Issuance Projections

We expect nonfinancial issuance to increase about 13% in 2023, with the potential for upside.  Global nonfinancial corporate issuance swung from a modest decline through the first quarter (-3.5%) to 9.1% expansion through midyear.

Regionally, the U.S. led the expansion, coming in with a growth rate of 41% through midyear. Recent rate stability, a resilient economy, and a market that dodged several potential sources of acute stress all helped boost sentiment. European issuance is also up a healthy 17%, while the rest of the world has seen a contraction of 10%, largely driven by a slowdown in Chinese issuance, which will likely persist as issuers make strides to reduce leverage.

One tailwind helping European issuance has been a strengthening euro relative to the U.S. dollar. Since we report all of our figures in U.S. dollars, the euro-denominated totals from the second half of 2022 were coming in lower than is typical given the prevailing exchange rate in the latter half of 2022.

As of July 14, the euro gained roughly 11.5% from a year prior. Conversely, the Chinese renminbi-- the largest currency of choice for global nonfinancial issuance after the U.S. dollars--has declined about 5% relative to the dollar. We generally expect these exchange rates to stabilize around current levels, at least through the remainder of this year.

While some companies may have used their excess cash to pay down upcoming debt, this does not appear true for the larger population of rated issuers globally (see chart 7). Investment-grade companies' cash balances declined substantially in 2022, and we expect them to remain at pre-2020 levels. Companies were arguably able to avoid issuing debt last year amid quickly rising rates, in part owing to large cash piles to pull from as an alternative.

At the same time, we also expect the buildup in outstanding debt since 2016 to continue. Rather than use funds to pay down debt, companies were more likely to increase buybacks and dividends in 2022--which together reached roughly $1.5 trillion for the S&P 500 last year. And estimates from the first quarter of this year reflect a smaller, but still large, amount devoted to buybacks and dividends.

Chart 7

Among emerging markets, the country with the most issuance--China--saw a decline of 13.6%. The largest sector (homebuilders/real estate) held relatively steady compared to last year, and economic growth is expected to be stronger than in 2022 despite recent slow estimates through the first quarter. Nonetheless, we don't expect very strong issuance growth outside of the U.S. or Europe this year.

We expect financial services issuance to remain flat in 2023.  Overall financial services' issuance totals were unsurprisingly weak through March, down 16.4%, amid the bank sector volatility seen after the failure of Silicon Valley Bank. But the decline has eased through midyear to -5.6%.

Regionally, declines have been significant in the U.S. (down 31% through midyear) and moderate (-5.8%) in the rest of the world, excluding Europe. For Europe, higher totals early in the year have kept midyear growth alive (up 14%). Despite declines, non-European issuance rebounded in the second quarter as authorities' backstops to bank sector stress calmed markets and interest rate increases slowed from last year's pace. We continue to expect issuance trends to normalize but the U.S. to ultimately see a decline, keeping the global growth rate suppressed to roughly flat from last year.

We still expect a rebound in the second half of 2023, and there is some potential for growth to surpass 2022 levels. Much of recent years' growth was seen in the brokers sector, which saw a boom in mergers and acquisitions (M&A), particularly in 2021. That M&A pipeline has since fallen off dramatically, leaving little room for growth and investment. This has led to banks reclaiming their majority hold on overall financial services issuance (see chart 8).

However, in the U.S., the overall bank system reached its highest leverage levels since the 2008 financial crisis in 2022 (9.6x). Historically, this tends to precede a falloff in bank issuance, which was at an annual high last year. And we believe many of the largest banks in the U.S. are currently meeting their total loss-absorbing capacity (TLAC) requirements--and will for the near term--removing any need to issue more TLAC-compliant debt.

Chart 8

Meanwhile, as the European Central Bank (ECB) starts winding down portions of monetary policies, such as the targeted longer-term refinancing operations (TLTRO), banks have started issuing much more debt this year. We expect this trend will largely continue, though it could slow somewhat.

Global structured finance issuance could fall 13%, an upward revision after a strong second quarter.   After a lackluster start, global structured finance issuance ended the first half of 2023 at $608 billion, down 16% compared with the corresponding period last year. However, the reading was a slight improvement compared with the first quarter, when global structured finance issuance was down 22% versus the same period in 2022. The recent improvement was largely due to strong covered bond issuance in Europe, while securitization issuance in the region also exhibited moderate growth.

However, persistently high inflation, tightening monetary conditions, and escalating geopolitical tensions continue to disrupt financial markets broadly. We now expect issuance declines of 13% (with a range of -18% to -8%) relative to last year, up from our baseline of -20% from the prior quarter.

Expectations for stronger, but still subdued, economic growth in 2023 could still limit any strong upside for the remainder of the year. Furthermore, as interest rates remain higher for longer, economic and financial market uncertainty will likely continue to limit issuance in the near term and keep risks tilted to the downside.

Our forecast is largely based on the slower pace of U.S. issuance, which typically represents the lion's share of global structured finance issuance volume. If our economists' expectations for slower growth--but no recession--in the U.S. prove correct, second-half 2023 totals could recover some of the year-to-date lost ground.

The U.S. represented just 41% of the global structured finance market in the first half of 2023, a decline of 15 percentage points from year-end 2022 and 25 percentage points from 2021. Furthermore, the covered bonds sector (which doesn't exist in the U.S.) continues to lead the increase in issuance in the rest of the world.

European covered bond issuance is up 20% year over year through the first half of 2023. Covered bonds are insulated from the wider issues disrupting markets, and normalizing central bank policy in Europe has brought more issuers to market. Amid a higher for longer interest rate, issuers will continue to favor covered bonds relative to other, more expensive sources of funding, which will likely continue to support issuance in the near term.

We expect U.S. public finance issuance to fall about 5% in 2023.  We assume 2023 issuance will decline roughly 5% from 2022's $388.4 billion total. Still large federal stimulus and strong financial reserves give issuers room to delay coming to market at prevailing rates. And yields on outstanding munis are nearly the same as Treasuries, reducing their relative appeal for investors. Maturing debt (by face amount) is showing a slight decline for 2023 and 2024, which reduces another potential tailwind for issuance. However, in 2025, this amount surpasses the 2024 total by more than 10%.

Second-half comparables from 2022 present a fairly easy hurdle. Issuance totaled only $172 billion in the second half of 2022, compared with a more typical $200+ billion in five of the prior six years. However, momentum has slowed since last year, so any second-half excess will make up only some ground from the first-half 2023 decline of 18%.

We expect a sizable decline in international public finance (IPF) issuance.  Like USPF and structured finance, IPF also saw a double-digit (26%) decline in issuance from last year, through midyear, reaching $562.7 billion. That said, the second-quarter 2022 total was a massive $462.7 billion, which we expected would widen the year-to-date decline of 1.2% through the first quarter. We believe some of the shortfall so far this year will be made up--ultimately, to a roughly 18% reduction in issuance relative to 2022.

Second-half 2022 volumes were particularly weak, accounting for only 28% of the annual total. This sector saw incredible growth since the pandemic--more than most other sectors--becoming a $1 trillion asset class in 2020 and staying there since. While we project a return to the pre-COVID-19 quarterly totals for the remainder of the year, that would still have issuance come in higher than the $767 billion seen in 2019.

First-half issuance summary

Global bond issuance in the first half totaled $4.03 trillion, down 7.7% from the first half of 2022. Declines occurred across all asset classes outside of nonfinancials, which was up 9.1% through midyear. IPF saw the largest decline, at 26.3%, and USPF had an 18% decline. Structured finance finished midyear with a similar decline of 16%. And after a decline of roughly 16% through the first quarter, global financial services made up some ground through midyear, with a decline of 5.6%.

These figures cover only debt with maturities greater than one year and exclude debt issued by supranational organizations and sovereigns. All references to investment-grade and speculative-grade debt are to issues rated by S&P Global Ratings.

U.S. Financing Conditions Remain Mixed

Financing conditions in the U.S. arguably improved in the second quarter after the bank sector stress abated, the debt ceiling was resolved, and the Fed paused at its June meeting.

Benchmark yields are higher than where they were a year ago but have largely stabilized, and this has also been the case for long-term corporate yields. Meanwhile, short-term rates continue to rise, straining floating-rate debt, which is sizable at the lower rating categories.

Despite what appear to be higher-for-longer interest rates and a slowing (but still growing) economy, the distress market remains small, with the distress ratio well below typical highs during recessionary periods.

Table 2

Improved investor sentiment, but still-weak U.S. speculative-grade bond issuance

Issuance rated 'B-' or lower picked up in the second quarter, with volume more than doubling compared with the first quarter. The main contributors were the high tech and financial services sectors, which had $4.2 billion and $3.8 billion in issuance, respectively. Application software company Cloud Software Group Inc. was the largest issuer among 'B-' and lower, with $3 billion in bonds issued during the second quarter.

However, even with the improved volume rated 'B-' or lower, total speculative-grade issuance during the second quarter remained weak. Volume improved only slightly quarter over quarter. No speculative-grade rating category had strong second-quarter issuance.

U.S. investment-grade corporate volume fell to just $55.2 billion in April, contributing to weak issuance volume for the full quarter. Only the 'A' rating category had strong second-quarter issuance.

Chart 9

Rated nonfinancial bond issuance was weak in the second quarter, at $171 billion. High tech ($28.8 billion), utilities ($26.8 billion), consumer products ($21.4 billion), oil and gas ($13.7 billion), and health care ($13.1 billion) led by volume in the second quarter.

Rated financial bond issuance was also weak in the second quarter, totaling just $151.6 billion. Nearly half of second-quarter issuance came during May as contagion fears amid bank turmoil eased following a sharp rally in rates to end the first quarter.

Table 3

U.S. public finance issuance rose slightly in the second quarter

U.S. municipal bond issuance in the second quarter of 2023 was $99 billion, up slightly from $78 billion in the prior quarter. However, this total is down from $113 billion in the second quarter of 2022 and is lower than the average quarterly issuance over the last 12 quarters of $109 billion. Issuance in June was an outlier, at $38 billion, higher than the trailing-12-month average of $29 billion (see chart 10).

Chart 10

Breaking out issuance into components, new money issuance is 76% of the total in 2023, compared with 79% for all of 2022. Refunding rose in terms of percentages, to 14% from 13% last year, while mixed-use issuance is up to 10%, from 8% last year (see chart 11).

Chart 11

The three largest issues in the second quarter were from California, with a $2.6 billion issue in April; Illinois, with a $2.3 billion issue in April; and the City of New York, with $1.6 billion in June (see table 4).

Table 4

So far in 2023, Texas has the most issuance, with $27.6 billion, up 14% compared with the same point last year, followed by California, with $26.3 billion, down 4.5% (see table 5).

Table 5

U.S. structured finance issuance fell 35% in the first half

U.S. structured finance issuance reached a mere $249 billion through the first half of 2023, a 35% year-over-year decrease from 2022 (see chart 12). Rising interest rates and broader market volatility reduced the appetite for longer-duration spread products, continuing the trend in the second half of 2022 and first quarter of 2023.

As rates rise, the cost of debt for issuers increases and investors tend to move toward more liquid markets. Nevertheless, interest rates remain below historical norms, and demand still exists for spread products. Higher risk-adjusted yield, coupled with the largely stable performance offered by many structured finance sectors, could remain attractive to some investors. Furthermore, since neither economic recovery nor recession prospects have yet to materialize, U.S. structured finance could make up some ground in the second half of the year but will almost certainly fall short of last year's volume.

Chart 12

U.S. structured credit new issuance volume was down 24% through the first half of 2023, after it was the only sector to record growth through the first quarter (8%). That said, the first-quarter reading contrasted with a slower start to 2022 for collateralized loan obligations (CLOs) due to price discovery among SOFR-indexed CLO tranches and the underlying leveraged loans.

The leveraged-loan market has also fallen behind last year's pace (by roughly 65%), setting the stage for declines in structured credit issuance further into the year. Further, we've recently seen issuers moving to the high-yield bond market, which will further limit leveraged loan supply.

Nevertheless, spreads remain considerably wider than they were a year ago. If they narrow and larger players return to the market, new CLO issuance could still be strong compared with pre-pandemic years.

U.S. asset-backed securities (ABS) issuance had the smallest year-over-year decrease through the first half of 2023, down roughly 5%. Historically, ABS has represented the bulk of U.S. structured finance issuance. But, its inclusion of more consumer-reliant sectors will likely present risks given the increasing likelihood of additional rate increases.

We expect issuance to be mixed across the large number of ABS subsectors. Auto ABS and commercial ABS exhibited the only year-over-year increases through June, both recording double-digit increases.

Auto loan and lease ABS--which generally lead U.S. ABS issuance, at over 40% of total volume in recent years--has benefited from rather strong issuance, despite macroeconomic uncertainty, rising interest rates, and tighter credit conditions creating affordability challenges. S&P Global Mobility's June 2023 light vehicle production forecast calls for a modest increase of roughly 4% through the end of the year. However, rising interest rates amid elevated delinquencies could present a headwind for issuers--specifically among subprime auto ABS issuers because the auto loan borrowers are more vulnerable to worsening macroeconomic conditions.

Commercial ABS was the only other subsector that exhibited year-over-year growth through the first half, with strong contributions from equipment and fleet lease ABS. Meanwhile, all other sectors, such as esoteric, personal loan, credit card, and student loan issuance, recorded sharp declines through June.

U.S. residential mortgage-backed securities (RMBS) issuance was down over 60% year over year through the first two quarters, substantially lower than initially expected. For the first half of 2023, the U.S. housing market underwent a correction as rising mortgage financing costs further eroded affordability and slowed the record pace of the home price appreciation since the pandemic. U.S. housing supply remains constrained, exacerbated by borrowers choosing to keep their homes after having have locked in very low mortgage rates. With the anticipated growth slowdown, we expect both loan originations and the issuance of U.S. RMBS to continue to decline in the near term.

However, subsectors such as non-qualified mortgages (non-QM) and home equity lines of credit (HELOC) may continue to see investor support. Non-QM is more insulated than other asset types because the borrowers are less rate-sensitive than in the prime conforming space. Meanwhile, HELOC issuance could see growth as homeowners tap into the equity they built over the past few years.

Because ABS and RMBS tend to be consumer-oriented, they may be more susceptible to issuance declines tied to unemployment and changes in consumer spending. S&P Global Ratings economists expect unemployment to reach 4.0% by year-end 2023 and peak at 4.6% in 2026, which will, in turn, soften consumer spending and decrease loan originations. Issuance on longer-duration assets, such as residential mortgages, could experience a larger decrease than that of shorter-duration ABS products, such as autos. Even so, structural protections could otherwise limit rating actions stemming from an increase in delinquencies or defaults.

For U.S. commercial mortgage-backed securities (CMBS), the rapid increase in interest rates, wider spreads, and broader uncertainty continue to constrain issuance. Uncertainty about office space demand and hybrid working arrangements continues to weigh on the commercial real estate sector and on 2023 issuance volumes. While both single-borrower and conduit/fusion segments experienced year-over-year declines, most of the reduction has been from single borrowers, whose property type exposures continue to evolve coming out of the pandemic.

Financing Conditions Remain Tighter In Europe

Financing conditions remain generally more restrictive in Europe, although this has not stopped primary markets from seeing expansion this year. Covenant-lite loans as a proportion of leveraged loans remains high, but the amount of loan issuance is still lagging, similar to the U.S.

Optimism for increased travel and leisure this summer could help boost revenues for many weaker operators in service sectors, which could be helping to keep corporate spreads tight despite rising benchmarks, a reduction in ECB supports, and the Russia-Ukraine conflict. Similar to the U.S., benchmark bond yields have largely stabilized, outside of some continued widening in the U.K, and corporate distress readings also appear historically low, though higher than in the immediate post-pandemic period.

Table 6

European speculative-grade bond primary market remains stalled

European issuance in the second quarter remained weak for all speculative-grade rating categories (see chart 13). Meanwhile, strong investment-grade issuance continued, in particular in the 'AAA' and 'A' categories. Nearly half of investment-grade issuance during the quarter came in May alone as contagion fears eased.

Chart 13

Rated nonfinancial bond issuance was weak, at €80.6 billion. Utilities (€17.5 billion), auto (€11.1 billion), transportation (€10.1 billion), consumer products (€6.5 billion), and chemicals, packaging, and environmental services (€5.9 billion) led by volume in the second quarter. Rated financial bond issuance was strong in the second quarter, totaling €152.9 billion.

Table 7

European structured finance volume was up 17% in first half of 2023 on strong covered bond issuance

European structured finance volume grew in the first half of 2023 on strong covered bond issuance, with a modest 8% increase in securitization issuance also contributing to the positive reading. Eurozone covered bond issuance was up 20% versus the corresponding period in 2022. The main contributors were Denmark, Spain, Switzerland, and France--all of which had year-over-year growth rates in the sector of over 20% or more (see chart 15).

A few factors were responsible for the rise in issuance in European covered bonds, notably the favorable borrowing costs in the current higher rate environment. In addition, the repayment of over half of the TLTRO--the ECB's program to offer longer duration loans at favorable costs--is expected to reduce the need for intervention by the ECB.

Another factor is investor preference for shorter-dated covered bond issues (under 10 years), with 70% of this year's issuance having maturities of less than seven years (compared with less than 20% in 2021). This is due in large part to the inverted yield curve continuing to deter longer-dated bond issuance.

Covered bond issuance outside of Europe has surged as well. In particular, Canada partially replaced central bank funding with covered bond issuance, and South Korea and Singapore established new legislative frameworks to support new covered bond issuance.

Lastly, sustainable covered bond issuance is expected to increase in the near term as regulatory progress surrounding the identification of eligible assets continues to be made (see "Global Covered Bond Insights Q3 2023: Strong Issuance Is Here To Stay," June 29, 2023).

Primary issuance of leveraged loans in Europe through the first half of the year declined substantially year over year to levels not seen in over a decade. Decreased originations affected the packaging of European CLOs, which ended the second quarter down 17%. We expect leveraged loan originations to continue to decrease as interest rates rise, inflation remains elevated, and the Russia-Ukraine conflict continues to disrupt the European economy. A slowdown in M&A activity will also continue to drag on leveraged loan and speculative-grade bond sales, further affecting CLO production.

Eurozone RMBS issuance through the first half of 2023 was up about 13% compared with the first half of 2022, despite rising interest rates exacerbating affordability constraints. While RMBS has historically driven the structured finance market in the U.K., covered bonds are keeping up with last year's pace, down just 3% year over year through June. For the reasons mentioned above, we expect covered bond issuance to remain robust through the rest of the year.

Chart 14

Rated Emerging And Frontier Markets Bond Issuance Remains Subdued Despite Improving Sentiment In Secondary Pricing

Second-quarter dollar-denominated emerging and frontier markets corporate bond issuance was weak, at just $29 billion. This followed subdued issuance across regions in the first quarter. Europe, the Middle East, and Africa (EMEA) led with $14 billion, followed by Asia-Pacific (excluding China) with $6 billion, China with $5 billion, and Latin America and Caribbean with $3.7 billion.

Second-quarter rated emerging and frontier markets corporate bond issuance was depressed for all rating categories and across regions. EMEA led with $5 billion, followed by Asia-Pacific (excluding China) with $4.7 billion, China with $3.9 billion, and Latin America and Caribbean with $3.1 billion.

Chart 15

Most corporate bond issuance in emerging and frontier markets is unrated. In the second quarter, 96% of issuance was unrated by S&P Global Ratings, and 86% of all second-quarter issuance was unrated debt from China.

Chart 16

All second-quarter emerging and frontier markets corporate bond issuance, including issues that are unrated, remained strong in the second quarter. China was the only region that posted strong issuance for the quarter, with $397.9 billion.

Chart 17

Table 8

Table 9

International public finance issuance declined over 26% in the first half

Through the first half of 2023, IPF issuance declined significantly relative to the same period last year. We anticipated a widening gap through the second quarter owing to the record-setting quarterly total in the second quarter of 2022 ($462.7 billion).

China accounted for nearly 78% of the first-half total this year, making it the main driver of global bond issuance for this sector, which is the case in most years. And China saw a 32% decline in the first half, dragging down the total.

Outside of China, issuance was up slightly, by 2.8%, with many countries showing increases over 2022. Germany, Canada, Japan, and Australia led the non-Chinese total, accounting for 86.3%, or $108.5 billion.

Data on non-U.S. public finance volume is not reliable for determining the true size of overall borrowing, but these numbers can point to major trends. In the four years prior to 2020, issuance was extremely high (over $630 billion each year, on average). In 2020, issuance exceeded the $1 trillion mark for the first time, and it then surpassed $1.2 trillion in 2021. For 2022, the total was still in excess of $1 trillion, but 2023 will likely fall short of this total.

Structured finance issuance growth outside of the U.S. and Europe fell 6% in the first half of 2023

Structured finance issuance outside of the U.S. and Europe decreased 6% year over year in the first half of 2023. Issuance declined across the board, except for Canadian credit card ABS and Australian covered bonds, both of which exhibited double-digit increases through June. Canadian credit card ABS issuance has been strong in recent years, which we attribute to the all-in cost-of-funds advantage, coupled with solid ratings performance in the sector.

Australian structured finance issuance rebounded in the second quarter, up 4% through June 30, compared with -32% through the first quarter. Australian issuance growth in the first half of the year stemmed primarily from a rise in covered bond issuance. Historically, the RMBS sector has led issuance, and more recently the ABS sector too. However, securitization issuance through the first half of 2023 was down 10%.

We expect Australian structured finance issuance could be further challenged given persistently high inflation and resilient demand, which has forced central banks to raise rates to levels not seen since 2011. We expect rates to climb even further, which would increase household debt and, consequently, the packaging of securities in the two consumer-reliant sectors of ABS and RMBS.

Related Research

• Global Credit Conditions Q3 2023: Higher For Longer Will Fuel Ratings Divergence, June 29, 2023
• Economic Outlook U.S. Q3 2023: A Sticky Slowdown Means Higher For Longer, June 26, 2023
• Economic Outlook Eurozone Q3 2023: Short-Term Pain, Medium-Term Gain, June 26, 2023
• Economic Outlook U.K. Q3 2023: Higher Rates Start To Bite, June 26, 2023
• Economic Outlook Emerging Markets Q3 2023: A Slowdown Ahead After Beating Expectations, June 26, 2023
• Economic Outlook Asia-Pacific Q3 2023: Domestic Demand, Inflation Relief Support Asia's Outlook, June 25, 2023