Chart 1

Table 1

S&P Global Ratings Credit Research & Insights expects global bond issuance to rise 9% in 2024, to roughly $8.3 trillion (see chart 1 and table 1).   Bond issuance has been heady in the first half of 2024 for nearly all sectors we cover in this report. Still, we believe this may largely be from moving normal issuance activity expected for later this year to the first half, rather than a start of a prolonged surge in issuance. The stronger first-half reading across most sectors will help maintain larger full-year totals than our earlier projections. While markets are increasingly optimistic about interest-rate cuts ahead, residual concerns around economic resilience, an accelerated pace of refinancing, still modest merger and acquisition (M&A) activity, and continued fears of uncertainties that could raise market volatility later this year provide offsets.

Pull-Forward, Push-Back, Plan Ahead

Markets have remained positive through midyear.   Already tight global bond spreads in the first quarter tightened further during the second quarter (see chart 2). In fact, our U.S. speculative-grade bond spread reached an all-time low of 229.6 basis points (bps) on May 7. Since roughly the end of May, some widening has taken place, bringing spreads back to about where they ended the first quarter, but this is hardly a mark of pessimism.

Geopolitical risks are often difficult for markets to quantify or price.  Despite the call for snap elections in France around mid-June, European high-yield bond spreads only widened about 40 bps in response. And since then, they have declined by 15 bps to 340 bps on July 17--55 bps below where they began the year and only 9 bps above the start of 2022. Market sentiment has remained arguably resilient in the face of multiple event risk possibilities, including continued conflict in Ukraine, rising tensions in the Middle East, and numerous expected and unexpected elections this year, some of which whose practical outcomes remain to be seen.

Chart 2

Issuance has been largely limited to refinancing.  After two years of lackluster volume, markets have been willing to buy new debt, but the growth this year remains largely confined to refinancing activity and similar purposes (see chart 3). The relative lack of net new issuance for expansionary financing provides a qualification to the strong absolute levels of issuance in the first half. And with rates unlikely to decline meaningfully in the months ahead, it may be some time before M&A rebounds on a sustained basis or debt-based deal funding rises (much has been equity financed in the last 18 months) (see chart 4).

In addition to a likely move to get ahead of upcoming refinancing, large banks in the U.S. may also be preparing for Basel III changes, which could require higher capital charges on collateral and securitization exposures for specific collateral classes. Though far from finalized, this may be spurring increased issuance among some structured finance sectors this year.

Chart 3

Chart 4

China's pace of issuance growth has been slowing.  Overall issuance growth in recent years across corporations and public finance has had a fairly consistent tailwind from China. But years of exceptional debt growth were easier to sustain when economic growth was higher. Chinese authorities have embarked on a number of methods to encourage deleveraging in recent years, and this seems to be having effect, particularly when combined with weaker growth and consumer sentiment (see chart 5). Overall, Chinese nonfinancial corporate bonds have seen issuance growth this year, but this is perhaps somewhat moderated by the pullback in some of the largest sectors, such as homebuilders/real estate and utilities. Within international public finance (IPF), China still dominates the global totals, but the proportion is falling, especially after the 20% decline far this year from China. There remains the potential for stronger issuance growth out of China for the remainder of the year, but we feel this is less likely than a continuation of more modest trends.

Chart 5

Risks to Treasury yields remain.   Now that markets are anticipating more cuts from the Fed this year, optimism has also started to push down longer-term Treasury yields as well. But fundamental changes to both the supply and demand for Treasuries have been building for the last 18 months. Since the start of 2023, the supply of outstanding Treasuries has increased by roughly $3 trillion, or 13%. This has been a historically quick pace of growth, particularly in such a short amount of time, and largely driven by increases in the issuance of shorter-tenor instruments (see chart 6).

Chart 6

This quick increase has also coincided with some noticeable shifts among some of the largest holders of Treasury debt (see chart 7). The two largest holders at a sovereign level--China and Japan--have been cutting back since the start of 2022. China's declines may be less pronounced than what Treasury department data indicates--it is likely some of this decline is being made up using Euroclear, which either wouldn't show up or may be appearing under "Europe." Still, it is believed China's overall Treasury holdings have been declining. Meanwhile, the largest holder of Treasury debt--the U.S. Federal Reserve--has been cutting back through its quantitative tightening program.

Chart 7

Coming into this year, most market participants have been anticipating increased volatility in response to the numerous risks facing both monetary policy and geopolitical outcomes. In the case of the U.S., current borrowing levels are not expected to slow or decline for some time, and some already anticipate a continuation of the recent higher growth rate if the general election in November results in a unified government. And growing debt amounts aren't limited to the U.S. Increasing debt is becoming the norm since the pandemic, particularly for more developed countries (see "Sovereign Debt In Large Advanced Economies: Up, Up, And Away," July 2, 2024). Although market appetite has remained strong for private-sector debt, rising benchmark yields could either result in higher yields for corporates or crowd out borrowers via these higher costs going forward.

Issuance Projections

We expect nonfinancial issuance to increase 14% in 2024, with upside potential.  The pace of nonfinancial issuance has slowed in the second quarter from the first, but it remains up 17% through midyear. We still anticipate a relative slowdown for the second-half of the year but err on the side of optimism regarding geopolitical risks to market sentiment--for instance, that any disruption will likely be short-lived given historical precedent (see "Global Financing Conditions: Cautious Optimism After Peak Rates," Jan. 25, 2024).

M&A activity has been stabilizing this year, but at lower average levels than even back to 2018. And many deals are being financed via equity, limiting upside for issuance growth as a funding source. At this time, we see the pace and composition of M&A as neither a headwind nor tailwind, but we see upside potential in the future if interest rates fall over the next 12 months as anticipated. Activity has been moving in step with rates: higher real interest rates coincide with lower M&A volume and a higher proportion of equity financing.

The sizable upcoming maturity wall, particularly for rated maturities through 2026 ($3.4 trillion globally), should support issuance volumes over the medium term. But the recent surge in issuance this year has largely been used to refinance existing debt, reducing near-term maturity totals (see chart 8). This also largely holds true for overall issuance (including unrated debt), with almost $3.9 trillion in face value due in 2025 and 2026.

Chart 8

The pace of issuance growth from China has declined in recent years but could provide an upside surprise if authorities attempt to stimulate the economy. But this may be a lower probability event as time goes on, in part because the economic slowdown appears to be a result of falling consumer sentiment. The largest sector for issuance, homebuilders/real estate, has seen its issuance decline 17% this year, and growth there may rely on an improvement in household sentiment.

We expect financial services issuance globally to grow about 9% in 2024, led by a rebound in the U.S.  Global financial services issuance declined marginally in the second quarter (0.6% decline from second-quarter 2023) but remains up over 10% year-to-date. As with other sectors, we believe the pace of issuance will slow slightly in the second half as the potential for market volatility increases and issuers locked-in funding needs earlier this year. Still, given economic resilience and a strong start to the second-quarter bank earnings season, we would give more weight to the upside of our forecast range than the downside (+15% and +5%).

Most of the 2024 increase in issuance among financial services has come from the U.S. This should not be surprising after the noticeable pullback in issuance last year as a result of the uncertainties around the potential for systemic stress after the failure of Silicon Valley Bank (SVB). In 2023, global systemically important banks (GSIBs) in the U.S. cut their bond issuance to the lowest levels since 2010, but this year it's rebounded to over $52 billion (see chart 9). This increase accounts for nearly all of the global GSIB increase in issuance in the first half of this year and is a sign that normalcy has returned to the sector. Deposit outflows have stopped, and banks are again seeing an increase in deposits; however, the lingering risk of over half a trillion in unrealized losses remains. Barring a major shock, we do not feel large banks will pull back from their relative pace of issuance this year given the largely improved situation.

Chart 9

Among European banks, issuance should remain healthy as they aim to meet their additional loss-absorbing capacity buffers, particularly their eligible minimum requirement for own funds and eligible liabilities instruments. Thus far in 2024, their issuance remains roughly 2.5% higher than last year.

For China, financial services issuance has slowed in the last two years after years of 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. That said, issuance could be higher than we expect should authorities in China embark on more aggressive measures to boost nominal economic growth via lending.

Global structured finance issuance could rise 17% this year with upside potential.   Through the first half of 2024, global structured finance issuance tallied $760 billion, representing a 28% year-over-year increase. While we initially expected the strong start to the year to moderate as 2024 progressed, a strong second quarter alleviated some of the perceived risks heading into the second half of the year.

Like other sectors, we believe much of the issuance activity so far in 2024 may have been moved up to the first half of the year because market uncertainty is expected to increase in the second half. The looming implementation of new regulations may also have driven some increased issuance among certain subsectors in the global structured finance market through the first half of 2024. Under the new proposed frameworks (which are still being finalized), large banks' capital charges on collateral and securitization exposures will in some cases be higher, which could either spur or dampen securitization issuance. Higher collateral capital charges, for example, could incentivize increased use of securitization to manage risk-weighted assets through significant risk transfer (SRT) transactions, which we have already seen in asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) this year. Final adoption will likely come with regional differences, and resultant securitization activity in each region may look different once this new framework is put into effect. (For more, see "ABS Frontiers: Looming Basel 3.1 Rules Could Incentivize More Bank Securitization," June 3, 2024.)

In the U.S., all four major sectors: ABS, collateralized loan obligations (CLO), commercial mortgage-backed securities (CMBS), and RMBS exhibited considerable growth through June 30, 2024, albeit, coming off a rather lackluster year in 2023, which tallied the lowest annual total since 2020. However, higher activity through the first two quarters is arguably much stronger than underlying collateral growth would indicate.

The European structured finance market grew 12% through the second quarter, largely due to a 59% increase in securitization--primarily from increases in the RMBS and ABS sectors. Meanwhile, covered bonds (a bright spot through the first quarter) fell roughly 6% through the first half. We expect covered bonds to have another strong showing after a record 2023, along with a moderate pickup in securitization.

We expect U.S. public finance issuance to expand by 11% in 2024.  Like other sectors, we anticipate slower issuance over the remainder of the year but still strong enough to produce a year-over-year gain, particularly after a very strong second-quarter total.

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 remain large--particularly since the start of the pandemic. Nonetheless, first-half issuance was up over 33% as municipal issuers took advantage of favorable conditions. It may also be possible that issuers are looking to secure funds ahead of potential market volatility later this year, or as a hedge against any changes to federal policies that may impact the municipal debt market, such as changes in tax treatment.

Maturing debt (by face amount) is down slightly for 2024. However, in 2025, this amount will surpass the 2024 total by more than 10%, with potentially increasing refinancing needs. Also supportive is the generally strong demand for new debt by investors.

We expect IPF issuance this year to decline roughly 7%.   Much comes down to activity in China, which has accounted for just over two-thirds of the total since 2015. We expect issuance out of China to decline-- it is already down about 20% through mid-year--with historically difficult comparisons to beat from the second half of 2023.

That said, there may still be some ground to narrow the large decline thus far if local and regional 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. For this reason, our range of projections is wider than other sectors, with the potential for growth remaining. For now, we anticipate largely unchanged quotas for local government general deficit and special-purpose bond borrowing this year out of China, with a general easing of new borrowing over the next few years.

First-half issuance summary

Global bond issuance in the first half totaled $4.7 trillion, up 13.2% from $4.15 trillion in first-half 2023. U.S. public finance had the largest increase, up 33.2%, followed closely by global structured finance, which was up 28.3%, driven largely by the U.S. Global nonfinancial corporates' issuance expanded 17%, and global financial services grew 10.3%. The only sector to see declines has been IPF, which was down 8%, largely from a 20% decline in the largest country, 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.

Solid Issuance In The U.S. Sustained By Loose Financing Conditions

Matching the record issuance in the first quarter of 2024 would have been a difficult feat, yet market activity remained solid even if at lower pace, particularly in terms of refinancing and repricing within the broadly syndicated loan market. Corporate yields saw some declines, particularly for speculative-grade companies, while benchmarks were moderately up, keeping corporate spreads at historical low levels. The protracted high level of borrowing costs hurt nonperforming bonds and loans, up from March, yet below their long-term average (see table 2).

Table 2

U.S. Speculative-Grade Bond Issuance Higher Than First-Quarter 2024

Speculative-grade companies issued $69 billion in second-quarter 2024, slightly higher than the $67 billion raised within the previous quarter. The 'BB' category contributed to 53% of the overall speculative-grade issuance, up from 47% in first-quarter 2024. Block Inc. (BB+/Stable/--; high tech) issued senior unsecured debt of $2 billion, with an average eight-year tenor and 6.5% yield-to-maturity.

Investment-grade issuance was down 34% with respect to the previous quarter with $284 billion, which is still the second-highest quarterly volume since first-quarter 2023. The market stayed strong for the 'BBB' category, contributing to half of the quarterly investment-grade issuance. Within the category, Boeing Co. (BBB-/Negative/A-3) issued a total amount of $10 billion at 6.6% yield-to-maturity with a tenor over 17 years.

Chart 10

Nonfinancial rated bond issuance was $198 billion in the quarter, down 28% from $275 billion in first-quarter 2024. Leading by volume was utilities ($39 billion), high tech ($24 billion), retail ($20 billion)--of which three-quarter came from Home Depot Inc. (A/Stable/A-1) and CVS Health Corp. (BBB/Stable/A-2), and health care ($18 billion). First-quarter rated financial services bond issuance was $155 billion, a quarterly decline of 31%.

Table 3

U.S. public finance issuance expands handsomely in the first quarter

U.S. municipal bond issuance in the second quarter of 2024 was $139.8 billion, up greatly from $103 billion in the first quarter of 2024, as well as up greatly from $102 billion in the second quarter of 2023. This was the highest level of issuance in the second quarter of the year in at least the last 10 years, and it was the highest quarterly issuance since the third quarter of 2019. The monthly average for the second quarter was $47 billion, increasing slightly month over month to $48 billion in June (see chart 11).

Chart 11

Issuance so far in 2024

Breaking out issuance into components, new money issuance is 69% so far in 2024, compared with 78% for all of 2023; refunding is 18% so far in 2024, up from 13% for all of 2023; while mixed use issuance is up to 13%, from 9% in 2023. (see chart 12).

Chart 12

The three largest issues in the second quarter were from the Florida Development Finance Corp., with $3.1 billion in revenue bonds, Los Angeles, with $2.97 billion in general obligation bonds, and New York, with $2.55 billion in special facilities revenue bonds (see table 4).

Table 4

So far in 2024, issuance by the top 10 states has risen by 41%, ranging from up 127% for Massachusetts when compared to this point in 2023, to down by 21% for Illinois (see table 5).

Table 5

U.S. structured finance issuance increased sharply in the first half

U.S. structured finance issuance reached $405.4 billion through second-quarter 2024--a 73% year-over-year increase (see chart 13). We continue to believe higher risk-adjusted yield and the largely stable performance offered by many structured finance sectors will likely remain attractive to most investors. However, second-half headwinds such as the upcoming U.S. election or escalating geopolitical conflicts remain key risks.

Chart 13

U.S. structured credit.   U.S. CLO new issuance volume was up 81% through the first half of 2024, with broadly syndicated loan (BSL) CLOs up over 84% to $101.4 billion per LCD, a first half record and above the 2021 first half tally of $83.6 billion. Meanwhile, middle-market CLO issuance also increased, up 69% through the second quarter. The share of middle-market CLOs as a percent of total new issuance (19.6%) remained relatively unchanged through the first half relative to the corresponding period last year (21.1%).

Despite the leveraged-loan market lagging the pace of 2022 through most of last year, the 12-month-trailing leveraged loan origination volume has doubled through the first half of 2024 relative to that of 2023, setting the stage for further growth in structured credit issuance in 2024. Furthermore, BSL CLO 'AAA' credit spreads have narrowed by some 30 bps in the first half relative to the fourth quarter of 2023, returning to pre-pandemic levels for both BSL and middle-market CLOs. Strong investor demand for floating rate debt could see spreads tighten further in the third quarter, although the U.S. election could affect the direction of spreads in the fourth quarter.

The recent tightening of spreads reflects improving financing conditions and should bring CLO new issuance, resets, and refinancings well ahead of last year's pace, depending upon how spreads in the BSL market move. U.S. refinancing and reset volume is at 253 reprints, up from only two through the same period in 2023.

ABS.   U.S. ABS issuance recorded a significant 40% gain through the first half of 2024, with all major asset classes contributing to the overall increase except credit card ABS, which was down just slightly (less than 1%). While underlying issuance drivers differ across asset types, spreads over benchmarks have declined relative to last year more broadly.

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 we expect higher-for-longer interest rates. S&P Global Ratings economists expect 125 bps in rate cuts by the end of 2025, with the first cut coming in December, several months later than we had previously forecast.

Auto loan and lease ABS--which generally lead U.S. ABS issuance, at over 40% of total volume in recent years--are coming off a record year in 2023. Each subsector saw significant increases through the first half of 2024 (particularly in the prime auto loan space) despite some affordability challenges posed by macroeconomic uncertainty, rising interest rates, and tighter credit conditions. In aggregate, auto loan and lease ABS is up roughly 30% through June 30, 2024. Year-to-date growth was largely attributable to increased bank issuance as several banks returned to market after being absent for several years.

RMBS.   U.S. RMBS issuance through the first half of 2024 is $75 billion, up over 90% compared with the year prior (albeit a lackluster year that saw issuance volumes fall 40% from 2022 levels). Traditional indicators such as existing home inventory, home sales, starts, and builds remain constrained and are contributing to sustained record high home prices. Adding to the supply shortage is the "golden handcuffs" phenomenon in which borrowers choose to remain in their homes after having locked in low mortgage rates.

While the 30-year fixed-rate mortgage has fallen from its peak of nearly 8% in October 2023, a level that hasn't been seen in over 20 years, it remains elevated at 6.77% as of July 18. Sales of new single-family homes were down 5.4% in June 2024 compared with June 2023 and are at their lowest levels since December 2023. Meanwhile, privately owned housing starts were down 4.4% year over year in June, and building permits were down 3.1%.

Despite these challenges, there are other factors at play, which could be contributing to the growth in RMBS issuance. The Basel III Endgame or Basel IV rules as currently proposed (set to be implemented in 2025), would have punitive implications for banks with greater exposure to mortgages on their balance sheets because risk weight increases are part of the proposal. In preparation for these new banking standards, banks might increasingly turn to securitization to manage their balance sheets, offloading risking whole loans from their balance sheets via issuance in the nonagency RMBS market.

CMBS.   U.S. CMBS recorded the highest issuance increase among all sectors through the second quarter, up by roughly 200%. While last year's rapid increase in interest rates, wider spreads, and broader uncertainty dampened issuance, the impact has subsided, especially in the single borrower space. While future demand for office and retail properties remains uncertain due to the prevalence in remote work brought about by the pandemic and ongoing competition with e-commerce, respectively, other property types have picked up last year's slack, with over half observing issuance growth that exceeds their previous year totals.

Investors appear to be targeting property types with stronger collateral performance: lower delinquencies, potential for higher rent growth, favorable property valuations relative to others, etc. Among those are industrial and multifamily properties, which are both up well over 1,000% through the second quarter. Industrial properties have ultimately benefitted from the boom in e-commerce, with warehouses and distribution centers outperforming enclosed regional malls and other retail properties. Moreover, multifamily distress has declined, with many properties being built to keep up with demand in certain regions of the country. Meanwhile, lodging, and multiuse properties have also experienced robust issuance growth through the second quarter.

Financing Conditions Ease Slightly In Europe

Corporate yields have continued to fall in the second quarter, by roughly 50 bps for investment-grade issuers and 130 bps for speculative-grade. French 10-year government yields were up 30 bps after the announcement of snap elections in mid-June, with a bumpy ride for the OATs (Obligations assimilables du Trésor), further compressing corporate spreads. Money supply remains relatively restrictive, with credit standards seeing a slight net tightening due to banks' still-reduced risk tolerance. The leveraged loan distressed ratio rose to 3.1% from 2.8% as of first-quarter 2024 as the number of regional defaults remains at its highest year-to-date tally since 2008. Looking ahead, financing conditions will remain vulnerable to geopolitical risk, political uncertainty, possible worsening economic relations with China, and interest rates decoupling with respect to the Fed, which could affect the euro-to-dollar exchange rate and potentially rise long-term yields in the region.

Table 6

Primary markets remain active in Europe

Speculative-grade issuance totaled €43 billion--broadly in line with last quarter. Despite the 'BB' category contributing to 56% of the overall speculative-grade issuance, 'B' rated issuance recorded its best quarter since first-quarter 2021 with €19 billion. Among the top speculative-grade issuers was U.K.-based Bellis Acquisition Co. PLC (brokerage) with a senior secured six-year €2.2 billion note at 8.125% yield-to-maturity.

Investment-grade issuance took a breather, notching €197.5 billion, 37% lower with respect to the first quarter of the year. While the 'A' and 'BBB' category jointly contributed for 79% of the overall investment-grade issuance, the most resilient rating category was 'AA', with €24 billion, 22% lower than first-quarter 2024. Ten of the 15 largest issuers in the quarter were financing institutions. HSBC Holdings Plc (A-/Negative/A-2; banks) topped the list with senior unsecured and subordinated notes for an overall amount of €5.3 billion at floating rate and long-term tenor. Following, French-based Electricite de France S.A. (BBB/Positive/A-2; utility) issued €5 billion senior unsecured medium-term notes with an average 5.1% yield-to-maturity at an average tenor of 15 years.

Chart 14

Rated nonfinancial bond issuance was €105 billion, down just 6% from the first quarter of the year. Utilities (€20 billion), consumer products (€13 billion), and automotive (€12 billion) led by volume in the fourth quarter. Rated financial bond issuance, especially banks, suffered the most: overall market activity was down 45% with respect to first-quarter 2024, reaching €155 billion.

Table 7

European structured finance volume was up 12% in the first half

European structured finance volume grew 12% through the second quarter of 2024, largely attributable to increases in securitization markets as opposed to covered bonds, whose issuance fell to roughly 6%, erasing it's 13% gain through the first quarter. Investor-placed securitization largely came from the ABS and RMBS sectors (see chart 15).

Chart 15

Covered bonds.  European covered bond issuance slipped below last's year's record pace in the second quarter in part because of a stall in June due to wider market volatility surrounding the election in France. European covered bond issuance is now down roughly 6% compared to the corresponding period in 2023. While growth is negative, covered bonds act as a valuable source of funding strength and diversification for banks, and central banks are typically large holders of securities, particularly during times of quantitative easing. As bank deposits have fallen substantially from their peak following the pandemic, covered bonds have been a preferred long-term funding source at relatively lower prices. Furthermore, covered bonds remain 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 higher for longer, issuers will likely continue to favor covered bonds relative to more expensive sources of funding.

The rise in European covered bond issuance over the past two years is largely attributable to favorable borrowing costs, given higher rates. In addition, over 80% of the European Central Bank's (ECB) targeted longer-term refinancing operations--a program to offer longer-duration loans at favorable costs--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.

Leveraged loans and CLOs.  Like the U.S., primary issuance of leveraged loans has picked up substantially through the first half, up nearly 500% compared to near decade lows in second-quarter 2023. CLO issuance follows the trend in leveraged loan origination volume, with a lag of about four quarters. With the substantial increase in leveraged loan originations, the packaging of European CLOs increased 103% through the first half of 2024, which we attribute to spreads tightening in the first two quarters relative to year-end 2023 and increased year-to-date new loan issuance. The spread tightening on new CLO issuance has also increased incentives to refinance and reset more outstanding transactions.

RMBS.   European RMBS issuance is up nearly 75% through the first half, despite falling roughly 20% year over year in 2023. The increase stemmed mainly from a rise in issuance in the U.K., Ireland, and the Netherlands relative to the corresponding period last year. Further, a greater share of year-to-date European RMBS issuance has been originated by banks.

ABS.   European ABS was the bright spot in the first half, with robust issuance growth in German, U.K. and French auto ABS and other consumer ABS.

Active Speculative-Grade Issuance In Emerging Markets

Corporate spreads tightened again toward historical lows not seen since July 2007. However, sovereign yields moved upwards after election outcomes in Mexico, South Africa, and India. Corporate yields remain high, especially for investment-grade companies, which are still sitting 170 bps above than their 10-year average.

Table 8

Chart 16

Like other regions, rated emerging market issuance slowed its pace, with $16 billion, relative to $28 billion in first-quarter 2024. Investment-grade issuance was entirely responsible for the drop as speculative-grade issuance rose to $9 billion from $6 billion in the first quarter of the year--the highest since second-quarter 2021. Most of the increase came from the 'BB' rating category, with no 'CCC/C' issuance since the last quarter of 2021. Topping the investment-grade list is China-based Asian Infrastructure Investment Bank (AIIB; AAA/Stable/A-1+), which issued seven-year $1.1 billion at an average 2.9% yield to maturity. For speculative-grade issuance, Moroccan OCP S.A. (BB+/Positive/--; chemicals) tapped the market with 17-year $2 billion at 7.3% yield to maturity. Similar to European markets, bank issuance slowed in the quarter.

Chart 17

After six months in the year, emerging market issuance in 2024 accounts for about 54% of last year's annual total, with China representing the lion's share (86%), largely unrated. However, some regional discrepancy lies behind the numbers, with China and EEMEA having already issued 65% of their 2016-2023 average full-year volume, Latin America at 54%, and emerging market Asia lagging at 41%.

Chart 18

Table 9

Table 10

IPF issuance fell 8% in the first half

Unlike other sectors, IPF issuance is down for the year (-8%). China accounted for 67% ($392 billion) of the first half total--much lower than the 79.4% ($487 billion) in the first half of 2023--but remains the main contributor of global bond issuance for this sector.

Outside of China, issuance is up by 53.1%, with increases across most countries, in some cases substantially. New Zealand, Canada, and France saw the largest increases. Consistent with historical trends, Germany, Canada, Japan, and Australia led the non-Chinese total, accounting for 82.4%, or $160 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.

Structured finance issuance growth outside of the U.S. and Europe fell 22%

Structured finance issuance outside of the U.S. and Europe was down through the second quarter, with declines in nearly every sector except Australian RMBS and modest increases in Australian and Japanese ABS.

Australian RMBS was up over 78% through the second quarter relative to the same period last year, with a large uptick in prime RMBS. More nonbanks are originating self-managed superannuation fund (SMSF) loans as they move to diversify their portfolios and are becoming more prominent in Australian RMBS transactions. Despite elevated interest rates, which continue to weigh on housing affordability, low unemployment in the region and a stable economic outlook will likely support mortgage originations, particularly as the rental market remains tight.

While Australian ABS exhibited rather small year-over-year growth through the first half, the sector has gained a rather significant share of securitized volume over the past few years. We believe this will continue as pressures facing consumers, such as continued interest rate rises and persistent inflation, ease.

Meanwhile, some sectors saw little to no issuance, such as CMBS and structured credit. Covered bonds, which have seen atypically large issuance from some countries in recent years, appear to have pulled back thus far (down 48%), with no issues from Japan in the first half.

Related Research

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• China Local Governments: The Slow Road To Stabilization, June 13, 2024
• Economic Outlook U.S. Q3 2024: Milder Growth Ahead, June 24, 2024
• Economic Outlook Eurozone Q3 2024: Growth Returns, Rates Fall, June 24, 2024
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