Chart 1

Table 1

S&P Global Ratings Credit Research & Insights expects global bond issuance to rise 4.3% in 2024, to roughly $8 trillion (see chart 1 and table 1).   Despite a year that saw stress early on with a few high-profile bank failures, 2023 issuance growth largely landed close to our initial projections for most sectors. For 2024, the course of interest rates will dominate the macro-credit landscape once again. Recent positive developments have led to widespread agreement on declining rates ahead, helping to push up our expectations slightly relative to last quarter.

Consensus On Lower Rates Ahead, But Also Slower Growth

It seems that after two years of nearly unbroken increases, yields on government and corporate bonds may decline this year. But the question is "when?" At the time of our last publication, market rates were at their highest in roughly 14 years (see chart 2). However, once November began, Treasury yields declined and pulled down all other long-term yields with them on positive developments from both the Fed and Treasury. The Fed held off on any more increases, and the Treasury ultimately cut their expectations for borrowing over the next few months.

However, while the market reaction could be described as swift, optimism may have gotten a bit ahead of things, and yields have retraced some of their recent gains. While rates have fallen across the board in the fourth quarter, they have only come back to within the ranges seen since September 2022. This means issuers may have to wait a little longer for yields to fall below averages over the last 15 months.

Chart 2

However, spreads are falling globally as "soft landing" expectations increase.   In a general continuation of the relative optimism after the bank stress in March, corporate spreads across the globe have been on an extended tightening path into 2024 (see chart 3). All regions have seen their spreads decline to their lowest points in 2023 at year-end. With spreads so low and positive sentiment high, issuers are facing high demand for new debt before interest rates are expected to fall over the course of this year, presenting an opportune start to the year.

Chart 3

Diverging expectations for interest rates poses a risk (see chart 4).   Our positive revisions to our forecasts since October are largely a result of a more positive outlook for interest rates this year. Both markets and central banks are in agreement over the direction of interest rates (downward) but still disagree over the extent and timing. Though turning more dour in recent days, markets generally expect the Fed to cut rates by about 150 basis points (bps) this year. By comparison, the Fed (and our own economists) only expect about 75 bps in cuts, beginning in the second-half of the year. This generally also holds in Europe, where the European Central Bank (ECB) has taken a more fixed stance on rate cuts coming only in the second half of the year, also consistent with our economists' expectations.

Chart 4

Though the recent consensus for falling rates presents a net positive development, the divergence within this consensus for the extent and timing of rate cuts could cause bouts of market volatility this year, particularly if expectations shift to the more conservative view. Though less likely, there is an outside chance that inflation could remain "sticky" around current levels, pushing out rate cuts even later in the year, or to a lesser extent than even conservative estimates reflect.

China's efforts to lower leverage have also slowed (or reduced) issuance growth in recent years (see chart 5).   Across the major sectors covered in this report, all have seen marked slowdowns in issuance growth out of China in recent years. For nonfinancial Chinese corporates, declines started in 2022. Financial services issuance has increased in 2023--but after a decline the year earlier. Public finance is a proportional outlier, but after remaining flat in 2022, 2023's pace is still well below any since 2019. We anticipate issuance growth from China to continue to see more modest movement this year. Despite growing concerns over slowing growth ahead, at this time we anticipate only muted stimulus or easing of financing conditions as a remedy. 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 over 80% of the international public finance total in each of the last two years. But if larger stimulus were to occur, this could support stronger issuance growth in China than we currently expect.

Chart 5

A growing risk as we've entered 2024 is geopolitical.   The world has a few hot-points right now, including the ongoing conflict in the Middle East, what is now a two-year old war in Ukraine, and a year with roughly 70 elections (in over 50 countries) coming up, including the U.S. general election. The ultimate impact on economic activity and financial markets is still unclear, which is largely consistent with the historical track record (see chart 6). More often than not, periods of low primary market liquidity (when fewer speculative-grade bond deals that come to market) occur during recessions. The same generally holds true for instances when speculative-grade spreads widen quickly in secondary markets. Here we chose to use the speculative-grade market given its generally higher sensitivity to swings in market sentiment. In essence, geopolitical risk is arguably hard to price accurately until something is deemed a major event or change.

Chart 6

Still, there have been times when liquidity has dried up outside of recessions (see table 2). Since the start of the 21st century, the events most associated with dry spells have been during the height of the U.S.-China trade dispute in late 2018, the U.S. downgrade in 2011, and the Fed's effective squashing of pivot hopes in the summer of 2022. Other periods shown here are not in themselves part of recessions but are close neighbors in terms of recency. This arguably shows the type of events that could aggravate market liquidity and lending growth: any serious tension between the two largest economies, for example or large, disruptive events to the functioning of global financial benchmarks (such as U.S. Treasury rates).

Table 2

That said, the U.S. has seen its second downgrade by a major credit rating agency over the summer of 2023 with far less impact on markets than in 2011. European corporate spreads also saw a disproportionate widening at the outset of the Ukraine conflict, but in the last two years it was dashed hopes for an interest rate pivot that caused the largest liquidity freeze. Given the comparably more limited scope but increasing number of geopolitical stressors ahead, it may be that the biggest threat to markets could come from a confluence of events that have a combined impact rather than any singular stress point.

Ultimately, the tailwinds from rate cuts (should current expectations generally hold) will have to contend with what our economists believe will be slower growth this year (roughly 1.5% in the U.S., 0.8% in the eurozone, and sub-5% for China). And currently we do not expect a recession from any major economy this year in our base-case forecasts. Should growth remain positive, even if it's slower, market sentiment should stay stable enough for issuers to secure more favorable coupons than previously.

Issuance Projections

We expect nonfinancial issuance to increase 5.5% in 2024.   This is a slight upward revision from our prior forecast for 3% growth. Markets are more optimistic about the future course of inflation and interest rates after the last three months, but at this time we still don't see a base case supportive of more aggressive issuance growth.

Lower rates ahead should portend well for issuance growth, particularly after two years of both the fastest increase in policy rates and highest stickiness levels in years. Offsetting this is the expectation for slower growth globally. That said, there are arguably more tailwinds than headwinds to look forward to.

The sizeable upcoming maturity wall, particularly for rated maturities over the next three years ($4.27 trillion globally), should support issuance. This also largely holds true for overall issuance (including unrated debt), with almost $5.8 trillion in face value coming due through 2026.

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 or fund future growth.

Mergers and acquisitions (M&A) could see relative growth this year as well, fueled by falling interest rates and suppressed demand after two years of lower-than-typical volumes. A potential headwind could be arguably more restrictive regulations ahead, particularly in the U.S., but we expect overall activity to rebound from 2023 levels, which have already shown signs of turning the corner (see chart 7).

Chart 7

Issuance growth out of China has declined in recent years but could provide an upside surprise if authorities embark on measures to stimulate a slowing economy. For now, we feel this is in an optimistic scenario rather than our base case because much issuance growth in recent years has come from the still highly leveraged real estate sector.

We expect financial services issuance to grow about 6% in 2024, with upside potential.   Last year saw an early shock to the system with the failure of some regional banks in the U.S. and the absorption of Credit Suisse by UBS in Europe. While largely a U.S. phenomenon and one still mostly limited in scope to regional (largely unrated) banks, the unsettling events arguably had minimal impact on full-year issuance totals in 2023 relative to our initial projections. Looking ahead, although elements remain that could limit issuance growth, on balance we expect to see an expansion this year.

Similar to nonfinancial corporates, the refinancing pipeline for rated financial services companies appears robust through 2028 ($4.7 trillion globally; see chart 8). Increases in near-term maturities--largely those in 2025 and 2026--are partially the result of increased issuance of shorter-term tenor instruments recently.

Last year's bank sector stress did coincide with a noticeable pullback among global systemically important banks (GSIBs). In 2023, these banks made 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. Already in the first half of January, U.S. and European banks are off to their strongest start ever, with a combined $108 billion through Jan. 17, up from last year's record of $102 billion. This marks growth but repeats the same behavior as last year--so far.

M&A activity could also increase this year in the U.S. bank sector as a result of new Basel III capitalization rules being implemented, particularly for those banks around the $100 billion in assets level. It is believed that many midsize and regional banks will need to consolidate to successfully meet the new capital ratios more easily. That said, there is growing pushback to the rules in their current form, so some adjustments may be made. Ultimately the U.S. bank system is very large in terms of its number of participants but has been gradually consolidating over decades, so this would not be a departure from long-term trends.

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 4% this year.   Global structured finance issuance ended 2023 at $1.1 trillion, representing a 7% year-over-year decline. Looking ahead, a backdrop of slower economic growth, high interest rates, and increasing geopolitical risks continues to set the scene in the near term, and we believe it will play a decisive role in 2024 issuance volume. We expect global structured finance issuance to fall 4% in 2024; however, there is potential for greater volume if economic headwinds are not prolonged.

We have revised our 2024 structured finance issuance growth forecast from the previous quarter to -4% (with a range of -9% to +1%) relative to last year, up from -15% to -5% due to a strong fourth quarter and improving market sentiment. The current forecast assumes a decrease in U.S. issuance partially offset by increased issuance outside the U.S., particularly in Europe.

The U.S. still represents nearly half of the global structured finance market, and we expect it to pick up some of the slack that weighed on the issuance declines in 2023. While some sectors were more resilient than others in 2023, notably asset-backed securities (ABS) and collateralized loan obligations (CLO), residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) have the most growth potential given their lackluster volumes last year. However, should rate cuts come later or more slowly than expected and improving macroeconomic conditions slow to materialize, this could strain 2024 volumes. Housing starts have slowed, and projections from our Market Intelligence colleagues calls for relatively slow growth ahead. We also expect auto ABS to face a flat to minimally growing new car market this year. CLOs could see some stability or even upside as underlying leveraged loan growth has been picking up in late 2023, albeit slowly.

Outside of the U.S., the European structured finance market grew to 34% of global issuance in 2023, a five-percentage-point increase from the previous year, as issuance in the region grew 12% year over year. The noncovered bond securitization market led the overall increase, up 25% year over year. Meanwhile, the covered bonds sector (which is nonexistent in the U.S.) also contributed to the increase, up a modest 6% year over year. We expect covered bonds to have another strong showing, even if it may end up declining relative to 2023, along with a modest pickup in securitization.

We expect U.S. public finance issuance to grow marginally (1%) in 2024.   Remaining federal stimulus funds and strong financial reserves have given issuers room to delay coming to market at prevailing rates over the last two years, and rainy-day funds have grown, particularly after the pandemic.

Maturing debt (by face amount) is down slightly for 2024. However, in 2025 this amount will surpass the 2024 total by more than 10%, offering some potential support for refinancing needs. Also supportive is the generally strong demand for new debt by investors. Interest rate differentials between Munis and Treasuries have been falling, making the asset class more desirable after seeing its yield fall below Treasuries in 2023.

While we are calling for a slight increase in issuance, an uncertain environment, along with sources of both headwinds and tailwinds, could produce a slight contraction as well.

We expect moderate growth in international public finance (IPF) issuance this year (up 7%).   We currently anticipate an increase of about 7% 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 it could 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, but upside surprises are also possible.

2023 issuance summary

Global bond issuance in 2023 totaled $7.7 trillion, up 4.8% from $7.2 trillion in 2022. Global structured finance had the largest decline, down 7.5%, but it remained a $1 trillion sector. U.S. public finance made up some ground in the fourth quarter, finishing the year down only 2.6% after falling behind by nearly 12% through the third quarter. These were offset by a 12% increase among issuance by nonfinancial corporates, a 2.3% increase in financial services, and a 14% for IPF, fueled primarily by a very strong fourth-quarter showing, driven by China.

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.

Investors Piled Into Credit As U.S. Financial Conditions Eased To End 2023

Financial conditions in the U.S broadly eased in the fourth quarter (see table 3). Looser fourth-quarter credit conditions were largely driven by treasury markets as interest rate cuts were quickly priced into intermediate and longer-term rates across the yield curve. The broad loosening of financial conditions buoyed both primary and secondary markets with the speculative-grade credit spread tightening 46 bps to 298. Appetite for U.S. credit has remained relatively strong in the early days of 2024.

Table 3

U.S. speculative-grade bond volume sees green shoots after rate reversal

Just $4.3 billion of volume rated 'B-' or lower posted in the fourth quarter after issuance ground to a halt in October. But a sharp reversal in rates saw volume jump in November as the weakest speculative-grade issuers took advantage of easing credit conditions with $2.3 billion of issuance for the month--the most monthly volume since June. The largest of these issuers was Spirit AeroSystems Inc. with a $1.2 billion 'B-' senior secured note offering at a yield-to-maturity of 9.75% on Nov. 9.

Speculative-grade issuance for the full year totaled just $161.3 billion--an improvement from a year earlier but still weak historically (see chart 9). No speculative-grade rating category saw strong issuance in 2023. For the fourth quarter, speculative-grade issuance remained weak with just $34.8 billion and low volume in all rating categories.

U.S. investment-grade issuance for the full year at $925.5 billion was up from a year earlier but is weak historically. Only the 'A' rating category saw strong volume during the year, bolstered by strong financial issuance. For the fourth quarter, investment-grade issuance was solid, with $179.5 billion, led by strong 'BBB' volume, with $104.8 billion.

Chart 9

Table 4

Nonfinancial bond issuance was weak in the fourth quarter with just $116.9 billion. Health care ($23.1 billion), utilities ($21.5 billion), consumer products ($15.6 billion), oil and gas ($10.6 billion), and aerospace and defense ($8.5 billion) led by volume. Fourth quarter rated financial bond issuance was strong with $97.3 billion.

U.S. public finance issuance rose in the fourth quarter

U.S. municipal bond issuance in the fourth quarter of 2023 was $99 billion, up slightly from $98 billion in the third quarter of 2023, and up from $75 billion in the fourth quarter of 2022. The monthly average for 2024 was $31.5 billion, as issuance fell slightly year over year to $379 billion in 2023, compared to $389 billion in 2022 (see chart 10).

Chart 10

Breaking out issuance into components, new money issuance was 77% for 2023, compared with 79% for 2022; refunding was 13% in 2023, the same as 2022; while mixed use issuance was up to 9%, from 8% in 2022 (see chart 11).

Chart 11

The three largest issues in the fourth quarter were from the New York Transportation Development Corp., with a $2 billion in special facilities revenue bonds issued in November, a Gas Supply Revenue bond issuance of just under $1.5 billion from Texas in November, and $1.3 billion in general obligation bonds by the state of Pennsylvania in December (see table 5).

Table 5

For all of 2023, Texas had the most issuance with $58.5 billion, up 22% compared to 2022, followed by California with $54.1 billion, up 15% compared to last year (see table 5).

Table 6

U.S. structured finance issuance fell in 2023

U.S. structured finance issuance reached $512 billion in 2023--a 17% year-over-year decrease from 2022 (see chart 12). Rising interest rates and broader market volatility reduced the appetite for longer-duration spreads in the second half of 2022 and into 2023.

As rates rise, the cost of debt for issuers increases and investors tend to move into 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.

Chart 12

U.S. structured credit new issuance volume was down 10% in 2023, after being the only sector to record growth through the first quarter (up 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.

Despite the leveraged-loan market lagging last year's pace through most of the year, the 12-month-trailing leveraged loan origination volume increased a marginal 2% by year-end 2023, setting the stage for an increase in structured credit issuance in 2024. Furthermore, CLO 'AAA' spreads narrowed in the fourth quarter of 2023 but remain above pre-pandemic levels. The recent tightening of spreads reflects improving financing conditions and could result in increased CLO new issuance, resets, and refinancings in 2024 depending upon how spreads in the broadly syndicated loan market move.

U.S. ABS issuance exhibited the only year-over-year increase in the sector in 2023, up roughly 6%. Historically, ABS has represented the bulk of U.S. structured finance issuance (approximately 40%), apart from agency RMBS. However, its stronger reliance on consumers may continue to present risks given our expectations of a "higher for longer" interest rate environment. While our economists expect 75 bps in rate cuts this year, it's to be seen how soon they may come and how long it will take for them to materialize. We expect issuance to be mixed across ABS subsectors in 2024. Commercial, auto loan/lease, and student loan ABS all exhibited double-digit increases through year-end 2023, while personal loan, credit card, and non-traditional ABS saw declines of similar magnitude.

Auto loan and lease ABS--which generally leads U.S. ABS issuance--at over 40% of total volume in recent years have benefited from strong issuance. Each saw significant increases in 2023 (particularly in the prime auto loan space) despite the affordability challenges posed by macroeconomic uncertainty, rising interest rates, and tighter credit conditions. The gap between prime and subprime issuance widened in 2023, with prime auto representing approximately 70% of auto loan 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 subprime auto loan borrowers are more vulnerable to weakening macroeconomic conditions. Furthermore, S&P Global Mobility's U.S. light-vehicle sales forecast calls for an increase of 2% in 2024.

However, several new issuers came to market in 2023--primarily credit unions and other banks. Credit unions benefit from safe harbor treatment (due to past legislation changes), which creates advantageous terms for securitized products relative to those of traditional loans. Meanwhile, other banks--largely absent from the ABS space in recent years--also saw a modest increase in 2023, which we expect to continue in 2024. The rising cost of deposits and outflow of deposits that some banks saw, as well as the looming Basel III regulations, contributed to the growth in bank issuance in 2023, which will likely continue in 2024. Basel IV, expected in 2025, calls for more punitive changes to the capital framework for securitized products, which means deals may be front loaded and result in decreased issuance in 2025 and beyond.

Commercial ABS exhibited strong year-over-year growth last year, with robust contributions from dealer floorplan and fleet lease ABS. Student loan ABS issuance in 2023 was driven by in-school private student loans, which we expect to be the primary driver of issuance in this space in 2024. Refinance student loans made a small contribution to the growth exhibited last year, which we expect to tail off in 2024 as interest rates remain elevated.

Meanwhile, issuance for all other subsectors--such as esoteric, personal loan, and credit card--fell year-over-year.

U.S. non-agency RMBS issuance was substantially lower than we expected in 2023, down over 40% year over year. Rising interest rates brought the 30-year fixed-rate-mortgage to a peak of nearly 8% in October 2023, a level that hasn't been seen in over 20 years. Coupled with record high home prices and lack of existing home sales (exacerbated by borrowers choosing to keep their homes after having locked in low mortgage rates), this resulted in historically low mortgage originations last year. We expect the U.S. housing market to pick back up as housing and mortgage credit fundamentals appear favorable heading into the new year. Mortgage loan origination forecasts appear mixed but directionally positive, which would support increased RMBS issuance this year.

European Credit Conditions Eased In The Fourth Quarter

Credit conditions eased during the fourth quarter led by lower benchmark rates with the 10-year bond yield tightening 80 bps. Secondary market credit spreads also tightened 49 bps during the quarter and remain moderate.

Table 7

European speculative-grade primary bond markets thaw in the fourth quarter

Speculative-grade issuance for the full year totaled just €83.9 billion--up slightly from a year earlier. No speculative-grade rating category saw strong issuance in 2023. Markets thawed slightly in the fourth quarter, though, as 'B-' or lower issuance came to market for the first time since June with Eg Global Finance Plc offering €1.5 billion 'B-' senior unsecured notes on Nov. 10. Total speculative-grade issuance for the quarter remained weak with just €19.1 billion but with moderate 'BB' volume.

Investment-grade issuance for the full year was strong at €750.6 billion. All investment-grade rating categories had solid or strong volume during the year, led by the 'A' rating category. However, for the fourth quarter, investment-grade issuance was weak with €117.4 billion weighed down by low 'BBB' volume.

Chart 13

Rated nonfinancial bond issuance remained weak in the fourth quarter with just €42.9 billion. Consumer products (€10.3 billion), utilities (€9.1 billion), high tech (€4.3 billion), homebuilders/real estate (€3.3 billion), and telecommunications (€3.1 billion) led by volume in the fourth quarter. Rated financial bond issuance remained strong in the fourth quarter with €93.6 billion.

Table 8

European structured finance volume was up 12% in 2023 due to strong ABS volume and resilient covered bond issuance

European structured finance volume grew in 2023 due to a 25% increase in investor-placed securitization issuance, particularly in the auto loan and lease ABS space, which saw an increase of 50% year over year. We expect issuance in this space to remain healthy in 2024 as a material share of 2023 issues had ratings in the 'BB' category or lower, meaning originators seem to be using securitization as form of capital relief as opposed to a funding mechanism. A modest 6% increase above historically high volumes in 2022 in the covered bond segment resulted in a 10-year issuance high and also contributed to the overall positive reading in Europe.

The striking increase in European investor-placed ABS issuance in 2023 was driven by auto loan and lease issuance increases, primarily in Germany and Italy, while nine countries contributed overall. This increase in issuance was largely attributable to the increase in new car sales (although these remained well below pre-pandemic levels).

Covered bonds continue to be 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.

The main covered bond issuers in 2023 were in Denmark, Italy, Switzerland, and Spain--all of which had double-digit growth rates year over year (see chart 15).

The rise in European covered bond issuance is partly attributable to favorable borrowing costs, given higher rates. In addition, over 80% of the ECB's targeted longer-term refinancing operations (TLTROs)--a program to offer longer duration loans at favorable costs to reduce the need for ECB intervention--have now been paid off, which could continue to support covered bond issuance as final maturities approach.

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 declined substantially year over year to near decade lows, despite picking up in the second half of 2023. Even with decreased originations, the packaging of European CLOs held steady, increasing just under 2% relative to 2022, a significant improvement from the negative readings in each of the first three quarters.

We expect leveraged loan originations to be broadly flat in 2024 as interest rates remain high, inflation remains elevated, and the Russia-Ukraine conflict continues to disrupt the European economy. That said, if spreads continue to tighten, this could provide an economic incentive for issuers to refinance or reset transactions that are outside of their non-call periods.

European RMBS issuance had a lackluster year, falling roughly 20% below that of the corresponding period in 2022 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 in the U.K. was the bright spot last year, up four times the previous year's total.

Chart 14

Rated emerging market bond issuance remains weak

The drop in global rates during the fourth quarter failed to boost emerging market issuance, but secondary markets posted a strong rally with spreads in all regions tightening during the quarter. The rally in global credit led to 40 bps of tightening in the European, Middle East, and Africa (EMEA) spread alone, but it remains moderate. Spreads remain tight in all other emerging market regions to start 2024.

Emerging market issuance for 2023 remained strong with $1.7 trillion driven by Chinese issuance--most emerging market bond issuance is unrated from China. Excluding China, emerging market volume was weak in 2023. Rated emerging market issuance for the full year totaled just $50.5 billion--up slightly from a year earlier--and markets remained stalled in the fourth quarter with just $6.2 billion of volume.

Chart 15

Chart 16

Chart 17

Rated issuance among emerging markets in the fourth quarter was limited (see table 9). In fact, markets were so dry that there were only 10 firms that came to market in the fourth quarter. Rated issuance was diffuse across countries and sectors, indicating selective lending and borrowing in place as 2023 came to a close.

Including unrated issues, emerging and frontier markets' corporate bond issuance remained healthy in the fourth quarter. However, the list of largest issuers is completely occupied by Chinese firms, and all issuers were from financial services (see table 10).

Table 9

Table 10

IPF issuance finished 2023 up 14% after a strong fourth-quarter total

After sizable declines through the first half of the year relative to 2022, IPF bond issuance has made up tremendous ground in the second half of the year, with $600 billion issued since June 30 and $283 billion in the fourth quarter alone. Through the first half of the year, IPF issuance declined 20% from mid-2022; however, we anticipated the sector would make up some ground given the second half of 2022 had historically weak totals.

China accounted for 82% of the 2023 total--consistent with 2022--making it the main driver of global bond issuance for this sector, which is often the case. Chinese issuance saw a massive rebound in the fourth quarter, finishing the year up 15.6% after only a growth rate of 0.35% through the first nine months of the year.

Outside of China, issuance was up by 7.4%, with mixed increases and declines across countries. Thailand and New Zealand saw the largest increases (140% and 58.5%, respectively), but consistent with historical trends, Germany, Canada, Japan, and Australia led the non-Chinese total, accounting for 87.2%, or $191 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. It has remained a $1 trillion bond issuance market since, finishing 2023 at a new annual high of $1.21 trillion.

Structured finance issuance growth outside of the U.S. and Europe fell

Structured finance issuance outside of the U.S. and Europe decreased 10% year over year in 2023. Issuance was broadly down except for Australian RMBS and ABS, Latin American ABS, and Japanese covered bonds, all of which exhibited double-digit increases through December.

A majority of the new issuance in Australia came from the RMBS sector. Despite elevated interest rates, which continue to weigh on housing affordability, low unemployment in the region coupled with a stable economic outlook will likely support mortgage originations, particularly as the rental market remains tight. ABS also gained momentum in the second half of 2023 due to structural shifts in the auto lending space, as large banks withdrew from auto financing and more nonbanks took their place.

Brazil has led Latin American ABS issuance, driven in part by heighted interest in the local cross-border markets in the region. ABS and repackaged securities are the most popular types of securitizations in the region.

In Japan, noncovered bond issuance was down 15% in 2023. Meanwhile, the covered bond space saw a significant increase last year, with nine issues for over $9 billion, compared with just two issues for $2 billion in 2022. The increase in covered bond issuance is partly due to Japan having the second-largest mortgage market in the world, with plenty of outstanding mortgage loans not already secured in RMBS to use as collateral, along with new issuers expected to enter the space.

Related Research

• Global Credit Outlook 2024: New Risks, New Playbook, Dec. 4, 2023
• Economic Outlook U.S. Q1 2024: Cooling Off But Not Breaking, Nov. 27, 2023
• Economic Outlook Eurozone Q1 2024: Headed For A Soft Landing, Nov. 27, 2023
• U.K. Economic Outlook 2024: More Stagflation Ahead, Nov. 27, 2023
• Economic Outlook Emerging Markets Q1 2024: Challenging Global Conditions Will Constrain Growth, Nov. 27, 2023
• Economic Outlook Asia-Pacific Q1 2024: Emerging Markets Lead The Way: Nov. 26, 2023
• China's Reforms Need A Confidence Booster, Oct. 9, 2023
• Global Auto Sales Forecasts: The Pricing Party Is Coming To An End, Oct. 9, 2023
• The Resolution Story For Europe's Banks: Making The Regime Fit For Purpose, Oct. 4, 2023