S&P Global Ratings Credit Research & Insights expects global bond issuance to rise 2.6% in 2023, to roughly $7.5 trillion, and to increase about 2.3% in 2024 (see chart 1 and table 1).   As we close out 2023, some sectors saw fairly resilient issuance volumes considering higher interest rates, the lingering effects of pandemic-era factors, and the increased volatility that developed market banking sectors faced in March. Looking ahead, the course of interest rates will dominate the macro-credit landscape, while rising refinancing obligations will need to be addressed amid likely slower growth.

Chart 1

Table 1

Rates Have The Spotlight, But Slower Growth Could Alter The Stage

The main theme of 2023 for fixed income has been interest rates. Rates were perhaps less volatile than in 2022, and the year was filled with hopes that central banks would start to cut them. We don't expected this to happen in 2023, and the Federal Reserve's latest update to their dot plot suggests interest rates will remain higher for longer in the U.S. In 2024, interest rates will remain a driving theme for credit markets and credit quality.

As Treasury yields have risen since early 2022, they have pulled most other sovereign bond yields and benchmarks up with them (see chart 2). Usually overlooked, most long-term interest rates had arguably stabilized in the last 12 months, albeit at higher levels and with more fluctuation than in 2021. However, since August, Treasury yields have been rising past their recent range, again pulling other sovereign yields up with them.

Over the last year, corporate yields had also largely stabilized, and had initially escaped the recent hike in sovereign yields in the late summer. But they are also now rising after the last Fed meeting, where policymakers' new economic projections showed they expect rates to remain high into 2026.

Chart 2

Spreads are widening as risk perceptions increase.   After over a year of general tightening, bond spreads around the globe have started widening (see chart 3). Markets have readjusted their expectations for interest rates and the year-long "bear tightening" of spreads may be over.

Despite higher rates, spreads have been tightening since mid-2022 because benchmark rates such as Treasuries and Bunds have been rising faster than corporate yields. Tightening spreads typically reflect market perceptions of risks declining, but in terms of nominal financing conditions and borrowing costs, they have been a bit deceptive, obscuring higher yields underneath.

If nominal yields continue to increase (and most likely bring up real yields, given slowing inflation and revenue), the burden of new debt will be higher than issuers have faced for several years. Because of this and built-up cash reserves, many issuers have been able to avoid primary markets this year and last. With benchmark and corporate yields rising to new highs, this may become more challenging in 2024.

Chart 3

Treasury supply is growing and term premium is rising (see chart 4).   The amount of Treasuries outstanding has increased roughly 6% through August 2023, to $25.5 trillion from just under $24 trillion at the start of the year. This increase in supply has largely coincided with the recent increase in term premium, which is back above zero and rising quickly.

Term premium reflects the additional risk markets perceive from holding longer-term Treasury securities over short-term ones. Though still low historically, the recent rise in the term premium reflects additional risks beyond short-term rate volatility, given that short-term rates rose in response to the higher federal funds rate.

Chart 4

Demand for Treasuries is shifting.   While the supply of Treasuries is increasing faster than normal, the relative mix of Treasury holders is changing (see chart 5). Some of the larger holders of Treasuries--the Fed, China, and Japan--all appear to be cutting back over the 12 months through mid-year by 10% or more.

In the coming year, we expect the Fed will continue to cut back on its Treasury holdings by allowing maturing bonds to expire rather than refinancing them. Our estimates of Treasury holdings in chart 5 accounted for roughly 56% of the total Treasury market in June 2022 (based on chart 4). This has fallen to about 51% in June 2023, indicating more domestic holders of Treasuries are picking up the increased supply but demanding higher yields and raising the term premium (see chart 5).

Chart 5

More fundamental factors have also boosted Treasury yields recently.   The debt ceiling, rising debt levels, an ousted Speaker of the House and a potential government shutdown are arguably contributing to higher risk perceptions, while very resilient economic growth is reducing demand for Treasuries. Two major credit rating agencies (including S&P Global Ratings) also no longer rate the U.S. at their highest rating level. These factors make it more likely that Treasury yields will remain elevated in the near term, keeping global interest rates high and likely keeping bond issuance growth modest.

China's efforts to lower leverage have also slowed (or reduced) issuance growth in recent years (see chart 6).   Across the major sectors covered in this report, all have seen marked slowdowns in issuance growth from China in recent years. For nonfinancial corporates, the decline started last year. Financial services issuance has continued to increase, but very slowly, and among public finance entities, the 2023 total through September is essentially the same as last year. We anticipate the country will continue to reduce leverage through formal and elective methods, for the most part. This should suppress global issuance growth rates in the next few years, as China accounts for roughly 30% of the global total for nonfinancial corporates and financial services and has contributed 80% of the international public finance total in each of the last two years.

Chart 6

Issuance has been a timing issue, but time is running thin.   Many issuers--particularly in developed markets--pushed out their maturities in 2020-2021 amid ultra-low interest rates and fiscal and monetary supports. This has arguably enabled them to avoid coming to primary markets since interest rates have started to rise. But the sizable amount of maturing debt through 2025 will need to be addressed next year.

If markets remain volatile over the remainder of 2023, this could push some issuance into 2024. But if more issuers decide to come to market now, rather than take a chance on interest rates ahead, this could pull some 2024 issuance into this year. And those still hoping for central banks to pivot later in 2024 may choose to postpone their refinancing until the second half of next year.

Downside risks prevail for 2024 (for now).   Borrowers may not like current interest rates, but they will eventually have to accept and adjust. This could be easier if growth continues. Economic growth has largely been surprisingly resilient over 2023, and markets and economies managed to avoid the widespread bank sector turmoil feared earlier in the year.

But it is unlikely that economic growth can continue at its current pace, and our economists expect slowdowns in most major economies. For issuance, recessions are often the biggest risks that slow the pace of lending. In such cases, benchmark rates fall while private-sector rates surge, widening spreads quickly and causing primary markets to markedly slow. While not in our base-case scenario, recessions remain a key risk as we look to 2024.

Issuance Projections

We expect nonfinancial issuance to increase about 14% this year, with modest growth in 2024 of about 3%.   Global nonfinancial corporate issuance has grown roughly 12.7% through September, slightly above our initial 2023 projection from last October of 10%. And with a weak fourth-quarter in 2022, we feel some additional ground may be covered to add to the 2023 growth rate.

Looking ahead, the picture for nonfinancial corporate issuance appears mixed. As a support, the upcoming maturity wall appears sizable, particularly for 2025 rated maturities (see chart 7). This also largely holds true for overall issuance (including unrated debt), with almost $2 trillion in face value coming due in 2025.

Chart 7

Firms' falling cash balances should also support issuance, particularly among investment-grade entities. Firms had built up large stores of cash and investments from excess issuance in 2020, but we expect their cash and liquid holdings to return to pre-pandemic levels this year and even lower next year, taking away an alternative source to pay down upcoming principal payments.

On the other hand, areas of growth such as mergers and acquisitions (M&A) or capital expenditure are likely to remain subdued. The volume of announced M&A deals globally has stabilized this year, but at a lower average monthly level ($157 billion) than in 2018 or 2019. High interest rates and arguably more restrictive regulation present challenges. And while our economists expect growth to be positive next year, it will be much lower than in 2023, which should also limit issuance growth.

We expect financial services issuance to see very modest growth in 2023, and about a 5% increase in 2024.   Despite challenges earlier in the year following stress in the bank sector, issuance for global financial services has rebounded through September, coming in at roughly the same level as in 2022.

This is roughly consistent with our initial 2023 projections from last October (1% growth expected). We feel issuance may see some more momentum in the fourth quarter, which could boost the full-year total to 2%. For 2024, we expect tailwinds to increase issuance by about 5%.

Similar to nonfinancial corporates, the refinancing pipeline for financial services appears robust through 2025 ($1.9 trillion in rated debt, globally). Issuers here may also be hoping for lower interest rates ahead and could have postponed some typical refinancing this year to 2024. This won't itself push an increase in issuance but offers a strong starting point.

This year's bank sector stress has arguably resulted in lower bank issuance globally, and this pullback has been more noticeable among global systemically important banks (GSIBs; see chart 8). In fact, GSIBs are currently making their lowest contribution to bank issuance in over 13 years--almost entirely attributable to pullbacks among U.S. GSIBs.

If these largest banks return to their normal issuance trends, this alone could add a couple of percentage points to issuance growth next year. For now, we feel this will likely benefit issuance if bank stress from earlier this year is contained. Deposit flight among the largest banks seems limited, and earnings remain strong. However, still volatile Treasury yields are causing unrealized losses to remain stubbornly large and have caused some hesitation among issuers to come to market.

Chart 8

Within Europe, bank issuance will remain healthy as banks aim to meet their additional loss-absorbing capacity buffers, particularly their eligible minimum requirement for own funds and eligible liabilities instruments. For China, financial services issuance has slowed considerably in the last two years after exceptionally strong growth. We anticipate this moderation will continue given the country's overarching debt reduction efforts, limiting upside for this sector's issuance growth globally.

Global structured finance issuance could fall 13% this year, with a similar decline in 2024.   After a lackluster start, global structured finance issuance ended the third quarter of 2023 at $851 billion, down 12% compared with the corresponding period last year.

However, the gap has continued to narrow from previous quarters (issuance was down 22% through March and 17% through June versus the same periods in 2022). The continued improvement was largely due to strong covered bond issuance in Europe, while securitization issuance in the region also grew marginally.

Still, persistently high inflation, tightening monetary conditions, and escalating geopolitical tensions continue to disrupt financial markets broadly. We continue to expect issuance to decline 8% to 18% relative to last year.

For 2024, we expect a similar decline of 5% to 15% due to worsening macroeconomic conditions. While we may see an uptick in global collateralized loan obligation (CLO) issuance and perhaps a single-digit increase in covered bond issuance, other sectors like residential and commercial mortgage-backed securities will likely see continued declines.

Consumer finances are coming under increased stress, with higher delinquency rates and more stretched credit lines, particularly for lower-income households. Mortgage rates have just hit 8% on 30-year loans in the U.S., and our recently released global auto sales forecasts have been revised downward for next year. All of this could also weaken issuance for asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) if consumer spending continues to deteriorate.

The U.S. represented 46% of the global structured finance market through the third quarter of 2023, a decline of six percentage points from year-end 2022 and 14 percentage points from 2021. Furthermore, the covered bonds sector (which effectively 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 9% year over year through the third quarter of 2023. Covered bonds are insulated from many of the issues disrupting global markets and normalizing central bank policy in Europe has brought more issuers to market. As rates remain high, issuers will likely continue to favor covered bonds relative to other more expensive sources of funding.

We expect U.S. public finance issuance to fall about 7% in 2023, with a modest pick-up in 2024.   Still large federal stimulus and strong financial reserves have given issuers room to delay coming to market at prevailing rates this year.

Yields on outstanding municipal debt are now below those of 10-year Treasuries, reducing their relative appeal for investors. Maturing debt (by face amount) is slightly down for 2023 and 2024, which will also likely curb issuance. However, in 2025, this amount will surpass the 2024 total by more than 10%.

This pick-up in maturing debt, along with what we believe to be a reduction in stored up pandemic-era supports, and lower sales taxes as growth slows and interest rates hit consumer spending next year, all point to more supportive factors for issuance growth next year. Our initial projection for 2024 issuance growth is a modest 4%, with slight upside potential.

We expect moderate growth in international public finance (IPF) issuance this year and next.   After seeing some large declines earlier in the year, IPF issuance rebounded to a very marginal increase through September. We expect this general momentum to continue through year-end, for a modest increase of 4% over 2022.

We currently anticipate a similar increase of about 5% in 2024. We expect issuance out of China to be stable, but not necessarily expansive given the government's desire to reduce leverage throughout the economy. That said, there may still be some growth if regional and local governments issue more debt to alleviate some of the burden on state-owned enterprises by swapping out their debt through IPF debt. This would still require quotas from the central government, so would likely come with restraints.

Much remains to be seen, but any shift in policy out of China could have very large repercussions for overall issuance, as this country represents roughly 80% of 2023 and 2022 totals. For this reason, our range of projections includes a potential decline next year.

Year-to-date issuance summary

Global bond issuance through September totaled $5.99 trillion, up marginally from $5.95 trillion through September 2022. Declines remained fairly large among global structured finance (down 12.6%) and U.S. public finance (down 11.8%). These were offset by a 12.7% increase among issuance by nonfinancial corporates, with a 0.7% decline in financial services, and the same increase (0.7%) for IPF.

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.

Investor Appetite For U.S. Credit Has Held Up

Financial conditions in the U.S broadly tightened in the third quarter, largely driven by Treasury markets as a higher-for-longer fed funds rate was quickly priced into intermediate- and longer-term rates across the yield curve. Despite the broad tightening of financial conditions, secondary-market credit spreads were tighter in the third quarter, suggesting investor appetite for U.S. credit remained relatively strong. Spreads have widened in October but remain tight historically.

Table 2

U.S. speculative-grade bond issuance stalls as intermediate-term rates rise

There was just $2.7 billion of 'B-' or lower volume in the third quarter after issuance nearly ground to a halt in the second half of August. Volume in the third quarter stalled amid the rapid rise in rates.

Just over half of 'B-' or lower issuance during the quarter came from a seven-year note offering rated 'B-' from capital goods issuer Brand Industrial Services Inc.--which printed at a yield to maturity of 10.375%. There was no 'CCC/C' issuance during the quarter, and the last 'CCC/C' deal to print came in April.

Speculative-grade issuance more broadly resumed in September, marking the strongest month of volume since May. However, volumes were weak across all rating categories for the full quarter, with speculative-grade issuance totaling just $34.1 billion.

U.S. investment-grade corporate volume also stalled in the second half of August before picking back up in September. However, only the 'A' rating category saw healthy third-quarter volume, and total issuance for the quarter was weak with just $189.6 billion.

Chart 9

Nonfinancial bond issuance was weak across all rating categories in the third quarter at just $100.3 billion. Utilities ($23.9 billion), high tech ($16.8 billion), consumer products ($8.8 billion), oil and gas ($7.1 billion), and homebuilders/real estate ($6.8 billion) led by volume in the third quarter.

Rated financial bond issuance was healthy for the third quarter at $123.5 billion. Financial issuance in the third quarter was strong in both the 'A' and 'B' categories--issuance in the 'B' category was led by banks and brokers, with $4.3 billion.

Table 3

U.S. public finance issuance fell slightly in the third quarter

U.S. municipal bond issuance in the third quarter of 2023 was $96 billion, down from $101 billion in the second quarter of 2023, and just about flat compared to the third quarter of 2022. The last 12 months have seen an average of $29 billion in issuance, compared with $36 billion in the previous 12 months (see chart 10).

Chart 10

By component, new money issuance is 77% of all issuance in 2023, compared to 79% for all of 2022. Refunding is 13% so far in 2023, the same as the full year 2022, while mixed use issuance is up to 10%, from 8% last year (see chart 11).

Chart 11

The three largest issues in the third quarter were from California, with a $2.6 billion issue in September, New York State, with a $1.7 billion issue in August, and Michigan, with a $1.2 billion issue in August (see table 4).

Table 4

So far in 2023, Texas has issued the most, with $49.7 billion, up 22% compared to the same point last year, followed by California, with $42.4 billion, up 5% compared to the same point last year. The largest drops in issuance from last year to this are New York, down 31% through September compared to 2022, and Florida, down 29% through September (see table 5).

Table 5

U.S. structured finance issuance fell 24% year to date

U.S. structured finance issuance reached $388 billion through the first three quarters of 2023: a 24% year-over-year decrease from 2022 (see chart 12). Rising interest rates and broader market volatility reduced the appetite for longer-duration spreads, continuing the trend from the second half of 2022 and first half 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 and the largely stable performance offered by many structured finance sectors could therefore remain attractive to some investors.

Furthermore, since neither economic recovery nor downturn prospects have yet to materialize, U.S. structured finance could make up some ground in the final quarter of the year. Indeed, fourth-quarter issuance volumes in the U.S. have historically been more robust than in other quarters. While U.S. issuance will almost certainly fall short of last year's volume, we could see a slight uptick in the fourth quarter, narrowing the year-to-date loss versus last year.

Chart 12

U.S. structured credit new issuance volume was down 21% through the third quarter of 2023, after being the only sector to record growth through the first quarter (8%). However, the first-quarter reading contrasted with a slower start to 2022 for CLOs due to price discovery among SOFR-indexed CLO tranches and the underlying leveraged loans.

The leveraged-loan market also lags last year's pace, by roughly 38%, setting the stage for declines in structured credit issuance further into the year. However, the market has recovered over the year, after being down 71% through the first quarter.

We've also recently seen issuers moving to the speculative-grade 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 land near pre-pandemic levels.

U.S. ABS issuance exhibited the only year-over-year increase in the sector through the third quarter of 2023, up roughly 5%. Historically, ABS has represented the bulk of U.S. structured finance issuance. However, its stronger reliance on consumers will likely present risks given our expectations of persistently higher rates. We expect issuance to be mixed across ABS subsectors. Auto and commercial ABS exhibited the only year-over-year increases through September, both recording double-digit gains.

Auto loan and lease ABS--which generally lead U.S. ABS issuance, at over 40% of total volume in recent years--have benefited from strong issuance, each up roughly 25%, despite macroeconomic uncertainty, rising interest rates, and tighter credit conditions creating affordability challenges. The gap between prime and subprime issuance has widened in 2023, with prime auto representing approximately 70% of year-to-date issuance. We believe this partly reflects higher prices, sales, and investor demand for shorter duration products, among other factors.

Rising interest rates amid climbing delinquencies will remain a challenge for subprime issuers, as these auto loan borrowers are more vulnerable to worsening macroeconomic conditions. Moreover, several new issuers have come market this year--primarily credit unions--with more advantageous terms for securitized products than those of traditional loans.

S&P Global Mobility's October 2023 light-vehicle production forecast calls for a modest increase of roughly 6% through the end of the year. However, our fourth-quarter forecast calls for an 11% decrease in production, primarily driven by the United Auto Workers strike. If unresolved, the strike may temper auto ABS issuance the fourth quarter.

Commercial ABS also exhibited strong year-over-year growth through the third quarter, with robust contributions from dealer floorplan fleet lease and equipment ABS. Meanwhile, issuance for all other subsectors--such as esoteric, personal loan, credit card, and student loan--fell through September.

U.S. RMBS issuance was substantially lower than we expected, down over 50% year over year through the first three quarters. In 2023, the U.S. housing market underwent a slight correction as rising mortgage financing costs further eroded affordability and slowed the record pace of home price appreciation seen during the pandemic.

U.S. housing supply remains constrained, which is exacerbated by borrowers choosing to keep their homes after having locked in low mortgage rates. With the anticipated growth slowdown, we expect loan originations and the issuance of U.S. RMBS to continue to decline into 2024.

European Credit Conditions Tighten

Financial conditions tightened in Europe during the third quarter. Credit conditions were broadly tighter, with benchmark rates rising across the yield curve. However, secondary-market credit spreads were flat during the quarter and remain moderate in October.

Table 6

European speculative-grade bond primary markets have stalled

European speculative-grade issuance remained weak during the third quarter across all rating categories. There has been no 'B-' or lower issuance since May.

Meanwhile, robust investment-grade issuance continued, with strong 'A' and 'BBB' volumes. Over half of investment-grade issuance during the quarter came in September amid a rise in global intermediate- and long-term rates.

Chart 13

Rated nonfinancial bond issuance remained weak at €58.9 billion. Utilities (€10.6 billion), retail/restaurants (€9.7 billion), consumer products (€9.5 billion), telecommunications (€5 billion), and transportation (€4.9 billion) led by volume in the third quarter. Rated financial bond issuance remained strong in the third quarter at €118.4 billion.

Table 7

European structured finance volume was up 7% through third-quarter 2023 due to resilient covered bond issuance

European structured finance volume grew through the first three quarters of 2023 due to robust covered bond issuance, which we expect to remain healthy through the rest of the year. A marginal 3% increase in securitization issuance also contributed to the positive reading.

Eurozone covered bond issuance was up 9% versus the corresponding period in 2022. The main issuers were in Denmark, Italy, Spain, Switzerland, and France--all of which had year-over-year growth rates in the sector of 25% or more (see chart 15).

The rise in European covered bond issuance is partly attributable to favorable borrowing costs, given higher rates. In addition, we expect the repayment of over half of the European Central Bank's (ECB's) targeted longer-term refinancing operations (a program to offer longer duration loans at favorable costs) to reduce the need for ECB intervention.

Some covered bond issuers have been attempting to replace that central bank funding as it matures. Another factor driving issuance is investor preference for shorter-dated covered bond issues (under 10 years). Some 70% of this year's issuance has a maturity under seven years (compared with 20% in 2021), 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. Canada partially replaced central bank funding with covered bond issuance, and South Korea and Singapore established new legislative frameworks to support covered bond issuance. We also expect sustainable covered bond issuance to increase in the near term, given continued regulatory progress in identifying eligible assets.

Primary issuance of leveraged loans in Europe through the third quarter 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 were down 7% in the third quarter--an improvement from the previous quarter's 17% decline.

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 had a lackluster third quarter, bringing the year-to-date total roughly 33% below that of the corresponding period last year, and erasing the 13% gain through the first half of 2023. We attribute much of the decline to rising interest rates, which continue to exacerbate affordability constraints.

While RMBS has historically driven the structured finance market in the U.K., ABS issuance appears to be the bright spot through September, up over 100% compared to same period in 2022. Countries such as Italy, Spain, and Germany also contributed significant year-over-year increases in this space.

Chart 14

Rated emerging and frontier market bond issuance remains weak

Third-quarter dollar-denominated emerging and frontier markets' corporate bond issuance remained weak, at just $27.4 billion. Europe, the Middle East, and Africa (EMEA) led, with $8.6 billion, followed by Asia-Pacific (excluding China) with $7.9 billion, China with $7.4 billion, and Latin America and the Caribbean with $3.6 billion. Issuance was low across all regions except EMEA in the third quarter.

Third-quarter emerging and frontier markets' rated corporate bond issuance remained weak at $18.9 billion. Only the 'AA' and 'A' rating categories had strong volume for the quarter. Asia-Pacific (excluding China) led, with $7 billion, followed by EMEA with $5.8 billion, Latin America and the Caribbean with $3.5 billion, and China with $2.7 billion. EMEA was again the only region with strong third-quarter volume.

Chart 15

Most corporate bond issuance in emerging and frontier markets is unrated. In the third quarter, 96% of issuance was unrated by S&P Global Ratings, and 87% of all third-quarter issuance was unrated debt from China.

Chart 16

Including unrated issues, third-quarter emerging and frontier markets' corporate bond issuance remained healthy in the third quarter. However, China is the only region that posted strong issuance, with $413.3 billion.

Chart 17

Table 8

Table 9

IPF issuance is flat through September, after large declines earlier

After sizable declines through the first half of the year relative to 2022, IPF bond issuance has made up significant ground in the third quarter to finish at $930 billion--roughly in line with last year's year-to-date total. Through the first half, IPF issuance declined 20% from mid-2022; however, we anticipated the sector would make up some ground, given that the second half of 2022 had historically weak totals.

China accounted for 82% of the year-to-date total--consistent with 2022--making it the main driver of global bond issuance for this sector, which is often the case. Chinese issuance remained essentially flat, increasing just 0.4%.

Outside of China, issuance was up by 2.8%, with mixed increases and declines across countries. New Zealand and Spain saw the largest increases (116% and 71%, respectively), but consistent with historical trends, Germany, Canada, Japan, and Australia led the non-Chinese total, accounting for 87.3%, or $143.2 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 $1 trillion for the first time, only to break $1.2 trillion in 2021. For 2022, the total also exceeded $1 trillion, and we believe it could again in 2023.

Structured finance issuance growth outside of the U.S. and Europe fell 10% through the third quarter

Structured finance issuance outside of the U.S. and Europe decreased 10% year over year through the third quarter of 2023. Issuance was broadly down except for Canadian credit card ABS, Latin American ABS, and Japanese covered bonds, all of which exhibited double-digit increases through September.

Canadian credit card ABS issuance has been strong in recent years, which we attribute to the all-in cost-of-funds advantage and solid ratings performance in the sector. Brazil has led Latin American ABS issuance, driven in part by heighted interest in the cross-border markets in the region. ABS and repackaged securities are the most popular types of securitizations in the region.

Australian structured finance issuance fell 3% in the third quarter compared to the same period last year after rebounding 4% in the second quarter (and from -32% through the first quarter). While the country's overall reading is negative, it's tilted by a 6% decline in covered bond issuance, substantially steeper than the mere 1% dip in securitization in the region.

We expect Australian structured finance issuance to remain challenged given persistently high inflation and resilient demand, which has forced the central bank 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.

In Japan, noncovered bond issuance is down 17%. Meanwhile, the covered bond space has seen a significant increase this year. There have been seven issues for over $6 billion, compared to just two issues for $2 billion in 2022.

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• Global Credit Conditions Q4 2023: Resilience Under Pressure, Sept. 28, 2023
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