Table 1

We expect a 3% increase in global bond issuance in 2025, to $9.5 trillion (see chart 1 and table 1).  Bond issuance was very strong in 2024 despite historically high rates and mounting geopolitical stresses.

S&P Global Ratings believes the positive momentum will likely continue, but we also think it'll be somewhat hamstrung by a combination of factors: persistently high rates and the potential for a U.S. economic growth slowdown (depending on the reach of the new administration's policies).

Our economists believe the immigration curbs that are being discussed could take roughly half of a percentage point off growth in the U.S., along with the additional possibility that implementing global tariffs--and the likely retaliation--could stoke inflation. Conversely, lighter regulation could lead to more merger and acquisition (M&A) activity or to further investment in new areas such as AI.

Because it may take time for these changes to be fully implemented, we may not know what their full impact will be for most of this year.

Rates Tick Up, Emphasizing Reliance On Economic Growth In 2025

Spreads recently hit all-time lows in the U.S.  Last year saw one of the largest growth rates in issuance despite increasing geopolitical risks and stubbornly high interest rates. Market demand held up--to the benefit of many issuers (particularly speculative-grade ones) who took advantage of historically tight bond spreads to refinance their debt (see chart 2).

In fact, both investment-grade and speculative-grade bond spreads in the U.S. reached new historical lows toward the end of the year--after both the short-lived market turmoil in August (in response to the nonfarm labor report) and the general election in November. Spreads have largely lingered near these new lows since, in part reflecting a tilt to optimism with regard to the new administration.

But spreads only declined because of widening yields on benchmarks.  Corporate bond spreads may have reached new lows last year--or generally tightened across the globe--but this was largely because benchmark government yields rose while most corporate yields either fell (outside of the U.S.) or rose far more modestly (see chart 3). Increasing debt loads in some countries amid higher interest rates could be part of what pushed government yields higher.

Benchmark yields may have risen, but they still remain range-bound.  Even though they've been climbing recently (and falling in the very near term), government yields are still in the ranges they've been in for at least the last 18 months, if not longer (see chart 4).

While current yields do remain discouraging to some market participants, they aren't necessarily breaching new highs, either. And higher yields in the last few years didn't trigger a boom in defaults, as sustained economic growth has kept real yields at more manageable levels for issuers.

Government borrowing has fallen since 2020, but it remains high in many countries.  Relative government debt levels have risen over time, peaking in 2020 (see chart 5). But in most countries, gross debt to GDP has been falling since--even ending 2023 below where it was at the end of 2019.

But there are some exceptions. Notably, debt to GDP in the U.S. reached 123% in 2023--a level that is second only to Japan's, and nearly twice where it was in the U.S. in 2007 (64.5%). That year, debt to GDP in the U.S. was even lower than debt to GDP in Germany (66.9%).

This is notable since economic growth in the U.S. has been stronger since the pandemic than in most countries. Given where nominal debt levels currently are in the U.S., and with the Federal Reserve still carrying out quantitative tightening, other buyers now have more of an influence on Treasury yields.

The U.S. has increased its stock of outstanding debt substantially since 2019 (see chart 6). At the beginning of 2025, $19.2 trillion of the U.S. debt outstanding was scheduled to mature over the next five years--a 68.4% increase from $11.4 trillion at the start of 2020. Meanwhile, GDP has grown at a seasonally adjusted annual rate of roughly 34% over the same period.

In addition, the increase in outstanding debt has largely been in Treasury bills--instruments that mature in 12 months or less. The $9.3 trillion in Treasury debt that's due to mature this year is over twice the amount that was due in 2020, and two-thirds of the amount due this year is in Treasury bills. This means the U.S. Treasury will likely have to keep supply high, which would keep yields elevated, all things being equal.

The new administration has said there's a desire to migrate some of this short-term debt to longer-term notes and bonds, but that wouldn't address the issue of heightened supply.

Meanwhile, loan benchmarks have been falling alongside policy rates (see chart 7).  Benchmark interest rates for leveraged loans--SOFR and EURIBOR (the Euro Interbank Offered Rate)--move in tandem with regional central bank policy rates, and they fell over the latter part of 2024. Exceptionally tight spreads also helped loan issuers last year, setting up more favorable lending conditions for loans relative to bonds.

It might be hard to see broadly syndicated loans top last year's issuance totals without some tailwinds from increased M&A funding this year, but this still presents a favorable backdrop for both loans and the collateralized loan obligations (CLOs) that buy the majority of them.

Global M&A activity has remained stable since 2023 (see chart 8).  This stability has coincided with relatively stable real interest rates (nominal interest rates minus the inflation rate). These real interest rates aren't necessarily at restrictive levels, but they're also not as supportive as they were in 2021, when there was a very large M&A boom.

Rates may stay elevated this year, but other potential tailwinds for M&A may also be coming, at least in the U.S. This may help M&A transactions return to their monthly averages from 2018, when M&A transactions were occurring more frequently despite real rates being very close to today's levels.

What could go wrong?

Last year saw risks mount across the globe--but despite that, capital markets remained resilient, and there was tremendous growth in issuance. Overall issuance may continue to grow in 2025, if at a more subdued pace. But fatigue may also set in, and risks, in some cases, may become more severe and less predictable this year in terms of their ultimate outcomes.

Issuance Projections

We expect a 3.5% increase in nonfinancial issuance in 2025.  Nonfinancial issuance jumped 25.5% last year--its highest annual growth rate since 2020--driven by tightening spreads and a flurry of refinancing activity. Thus far in 2025, spreads haven't widened noticeably, and so corporate debt should remain relatively attractive.

Nonetheless, uncertainties remain--particularly with respect to the course of interest rates--and last year's total could prove difficult to exceed. For now, we expect positive, but modest, growth in nonfinancial issuance.

We believe there's the potential for M&A activity to increase if U.S. President Donald Trump's administration takes a softer approach to regulation. And some sectors may already be planning ahead (see chart 9). The two sectors that could be the most poised to benefit from softer regulation and a pro-fossil fuels stance are the high technology sector and the oil-and-gas sector. And it was these two sectors that saw the greatest increases in issuance in 2024--both saw issuance climb by over 60%.

Refinancing activity was strong in 2024, which could soften this year's issuance growth to some extent, particularly for speculative-grade issuance. There's still a large amount of investment-grade debt with upcoming maturities, though, and we anticipate that this asset class will dominate rated issuance in 2025.

The growth rate for nonfinancial issuance in China has slowed in recent years, but there could be an upside surprise if authorities attempt to stimulate the economy through debt-friendly means.

We expect financial services issuance globally to grow 4% this year.  In the U.S., banks typically contribute about one-third of annual financial services issuance. U.S. bank issuance in 2024 benefited from an easy comparison against 2023, when large banks pulled back.

This year, U.S. banks won't have such favorable comparisons to deal with, but we still believe there's room for modest growth in issuance as the stressors of 2023 continue to fade. Already, the major banks are off to a positive start in 2025 with strong fourth-quarter 2024 earnings.

We see continued strength in issuance this year in Europe, where banks contribute roughly 60% of annual financial services issuance. We expect healthy issuance from European banks as they aim to meet their loss-absorbing capacity buffers--particularly their eligible minimum requirement for own funds and eligible liabilities instruments.

At the same time, our expectation is that European banks will continue to rely less on central bank funding and more on the debt markets.

Financial services issuance growth in China has been slowing since 2021, after years of exceptionally strong momentum. This general moderation will continue, in our view, given the country's broader debt reduction efforts, which will produce modest growth this year.

However, as with other sectors, financial services issuance in China could surprise to the upside if the government and central bank increase support amid flagging demand and economic growth.

Global structured finance issuance will likely be flat this year, one year after it reached its highest level since the global financial crisis.  Global structured finance issuance, including covered bonds, hit $1.3 trillion in 2024, representing a 30% year-over-year increase. While potential further rate cuts and spread tightening would continue to support issuance this year, much of that may have already been priced in. Moreover, the pace and magnitude of policy-rate changes are expected to differ across jurisdictions.

Any new inflationary pressure may hinder interest rate cuts in the near term. Potential headwinds include changes in the direction of U.S. policy and the continuing geopolitical conflicts.

Our revised forecast sees structured finance issuance as being flat in 2025 from last year, with our forecast range covering 7% growth to a 7% contraction; our previous forecast (from last quarter) saw a 7% contraction. The change in our forecast largely stems from improving and expected growth in the underlying collateral.

Issuers are being increasingly creative in their use of securitization as funding. Under new proposed frameworks (which were set to be finalized in 2025, though recent setbacks indicate universal adoption is likely further away), large banks' capital charges on collateral and securitization exposures will, in some cases, be higher. Higher collateral capital charges could further incentivize an increased use of securitization to manage risk-weighted assets through significant risk transfer (SRT) transactions. We saw this in asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) last year, particularly in Europe.

While our current forecast does assume slight increases in issuance in both the U.S. and European securitization markets, it will be difficult to materially outdo last year's record volume.

While we would normally expect consumers to benefit as central banks lower rates, it remains uncertain how long it may take for these benefits to materialize for individual consumers, though it will vary by region. As a result, consumer-facing sectors like ABS and RMBS will be in focus in 2025. They represent the lion's share of global securitization issuance, but they're also the most rate-sensitive sectors. Higher-for-longer rates could challenge issuance in these sectors.

While covered bond issuance declined marginally (9%) in Europe in 2024, we expect 2025 issuance to be on par with issuance levels for the previous three years--a period that saw substantial growth. Covered bond issuance in the rest of the world slid nearly 50% in 2024 from the previous year, but we expect an increase in 2025.

Our forecast sees about a 5% decline in U.S. public finance issuance in 2025.  Out of all the sectors we track, U.S. public finance saw the largest issuance growth rate in 2024 (32%), with issuance reaching a record $507 billion.

This will be a difficult amount to top in 2025, and the relative strength of second-half 2024 totals could be a signal that some issuers are coming to the market ahead of potential changes to the tax code (which currently allows for a federal tax exemption for interest earned on municipal debt). In addition, new issuance (as opposed to re-funding) reached an all-time high of $355 billion, and the proportion of total issuance that was taxable hit a multiyear low of just under 7%.

While the potential loss of this tax exemption may have helped nudge forward some of this year's issuance to 2024, we currently think it's unlikely that the municipal market will lose the exemption. Still, it could spur similar trends in the early part of this year while speculation remains elevated.

International public finance issuance is likely to increase, led by China.  The exceptional levels of issuance in the fourth quarter of 2024 showed that issuance growth surprises in international public finance can't be ruled out.

We project an increase of 5% for 2025, but the sector's high level of unpredictability could result in even more issuance growth. We expect a high level of issuance out of China, similar to recent levels of issuance in late 2024, as debt-swap transactions between local and regional governments and their financing vehicles continue.

Starting in 2026, the level of maturing debt in China (based on face value) will increase substantially as well--an average of roughly $360 billion per year through 2030. The level of maturing debt in the rest of the world will largely stabilize around the current level (roughly $200 billion per year).

2024 issuance summary

Global bond issuance in 2024 totaled $9.3 trillion, up 20% from $7.7 trillion in 2023. U.S. public finance had the largest gain in percentage terms of the sectors we track (32%), followed by global structured finance (25.2%), driven largely by U.S. issuance. Issuance by nonfinancial corporate entities globally expanded 25.5%, and global financial services issuance grew 16.6%. After showing declines through the third quarter, international public finance issuance ended the year up 11.2% after historically strong issuance in the fourth quarter.

These figures cover only debt with maturities greater than one year, and they 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.

Tightening Financing Conditions Contribute To A Normalization Of Issuance Levels

A high level of uncertainty around the U.S. elections, a significant amount of geopolitical risk, and an extraordinary volume of market activity in the first three quarters of 2024 all contributed to a normalization of issuance levels in the fourth quarter.

Historically tight corporate spreads are masking a recent rise in yields. Benchmark yields have already risen--they're approaching 5% on strong economic data--while corporate yields are still at restrictive levels (see table 2).

This could weigh on speculative-grade companies, which are more strained in terms of liquidity and operating margins and are subject to a protracted period of high borrowing costs. However, distress ratios were down in the quarter, and we expect the speculative-grade default rate to fall to 3.25% by September 2025 from 4.4% in September 2024.

Since the new administration's policies around tariffs and immigration curbs look inflationary, the Fed will likely ease its policy rates only gradually, and financing conditions could slowly tighten throughout 2025 (assuming there's no setback in economic growth).

Table 2

U.S. bond issuance let up in the fourth quarter of 2024

Investment-grade bond issuance in the U.S. slumped 41% in the fourth quarter of 2024 from the previous quarter, but the $188 billion in issuance was still the highest total for fourth-quarter issuance in the last three years. The drop was particularly pronounced for the 'AA' and 'BBB' rating categories, which accounted for 8% and 47% of investment-grade issuance volume overall, respectively.

Investment banks topped the list in the quarter, with JPMorgan Chase & Co. (rated 'A') issuing $10.5 billion in floating-rate debt with an 11-year tenor. Within the nonfinancial corporate sector, oil and gas exploration and production company ConocoPhillips (rated 'A-') issued 17-year global notes for a cumulative $5.2 billion at a 5.1% yield-to-maturity.

Speculative-grade corporate debt accounted for $40 billion in issuance in the fourth quarter of 2024, down 40% from the third quarter. Most of it came from the 'BB' rating category, which accounted for 58% of overall speculative-grade market activity. CVS Health Corp. ('BBB' issuer credit rating) tapped the market by issuing $3 billion, 30-year reset subordinated global notes, which were assigned a 'BB+' rating.

Bond issuance by U.S. financial services companies in the fourth quarter of 2024 ($138 billion) was only 2% below where it was the previous quarter.

Brokerage and banking in the U.S. had strong fourth quarters; together, they accounted for 70% of financial services issuance. Meanwhile, U.S. nonbank financial institutions issued less debt in the fourth quarter than in any other quarter in 2024.

Rated bond issuance in the fourth quarter by U.S. nonfinancial entities amounted to $89 billion, about one-third of the amount issued the previous quarter ($248 billion). Utilities ($19 billion) was the leading nonfinancial sector in the fourth quarter, followed by oil and gas ($11 billion), high technology ($10 billion), and consumer products ($10 billion). Issuance in the forest products and building materials sector in 2024 was strongest in the fourth quarter, at $5.8 billion (versus $2.5 billion in the third quarter).

Table 3

In 2024, U.S. public finance issuance surpassed $500 billion for the first time

U.S. municipal bond issuance in the fourth quarter of 2024 was $122 billion, down from $140 billion in the third quarter but up from $103 billion in the fourth quarter of 2023. For the first time in our records, full-year U.S. public finance issuance surpassed $500 billion--reaching $507 billion in 2024 (up from $383 billion in 2023).

While U.S. public finance issuance fell in the last two months of the year, the $66 billion issued in October was the highest monthly issuance figure since October 2020 and the third-highest monthly issuance figure in our records (see chart 11).

New money issuance accounted for 70% of U.S. public finance issuance in 2024 (compared with 78% in 2023). Re-funding accounted for 17% of U.S. public finance issuance last year (up from 13% in 2023), while mixed-use issuance made up 13% (up from 9% in 2023).

The three largest U.S. public finance issues in the fourth quarter were by issuers in New York state (including $2.1 billion in state sales tax revenue bonds and $1.9 billion in special facilities revenue bonds) and issuers in New Jersey (including $1.8 billion in transportation system bonds).

Table 4

In 2024, issuance by the top 10 states jumped 38%, with issuance growth for individual states ranging from 105% issuance growth for Florida to just 16% issuance growth for Texas (see table 5).

Table 5

U.S. structured finance issuance soared in 2024

U.S. structured finance issuance continued to carry the global total, climbing 65% in 2024 to $771 billion (see chart 13). This represents a high for the period after the global financial crisis, exceeding $757 billion in issuance in 2021.

The U.S. market share increased as well in 2024--to 57% from 45% the year prior and approaching the 60% market share level that the U.S. neared in 2021 after two years of decline. We continue to believe that higher risk-adjusted yields and the largely stable performance offered by many structured finance sectors will remain attractive to most investors in 2025.

Furthermore, issuers are becoming more creative with their balance-sheet management by using securitizations as a funding tool. However, potential future changes in the direction of U.S. policy, as well as escalating geopolitical conflicts, remain key risks.

U.S. structured credit.  CLO new issuance volume in the U.S. was $202 billion in 2024, according to PitchBook | LCD--a 74% spike from 2023 and 8% above the record $187 billion in 2021.

Broadly syndicated loan (BSL) CLOs climbed 85% to $164 billion in 2024, and middle market CLO issuance increased 39% to approximately $38 billion. While private credit was a hot topic throughout the year, middle market CLOs as a percentage of total new issuance (18.7%) slipped below where they were in 2023 (23.4%), though they remained well above where they were (roughly 12%) in the several years prior.

The leveraged loan market has been firing on all cylinders, with trailing-12-month leveraged loan origination volume more than doubling in the fourth quarter of 2024 from the same period in 2023. This sets the stage for further growth in structured credit issuance into 2025.

Furthermore, BSL CLO 'AAA' credit spreads narrowed by 42 basis points (bps) in 2024, and spreads for both BSL and middle market CLOs have returned to pre-pandemic levels.

The continued tightening of CLO spreads also provided a tailwind to both CLO resets and refinancings last year. U.S. CLO refinancings and resets increased to 663 reprints for a record $307 billion in 2024 from just 57 in 2023 totaling $25 billion.

We expect healthy CLO issuance in 2025 due to investor demand for floating-rate assets in an environment with fewer rate cuts than some had been expecting. A resurgence of M&A and leveraged buyout activity after several slow years could also generate new loan supply and collateral for new issue CLOs.

Asset-backed securities.  U.S. ABS issuance grew 8% in 2024, with all of the major asset classes seeing increasing issuance--except credit card ABS, which saw issuance fall slightly (roughly 11%). While the drivers of underlying issuance differ across asset types, spreads over benchmarks have declined substantially from where they were in 2023.

Auto loan and lease ABS issuance--which generally leads U.S. ABS issuance, at nearly 50% of total volume in recent years--grew roughly 6% in 2024, following a record year in 2023. Apart from rental car ABS, issuance in each subsector grew last year (particularly in leases and subprime auto loans). And this was despite some of the affordability challenges posed by macroeconomic uncertainty, higher-for-longer interest rates, and generally tighter credit conditions.

Several banks also returned to the market in 2024 after being absent for several years. This contributed to the year-over-year growth.

We expect auto loan ABS issuance to grow marginally in 2025, partially driven by an uptick in U.S. vehicle sales. (S&P Global Mobility projects a 1.2% increase this year in U.S. vehicle sales, to 16.2 million units.) But the sector's credit headwinds in 2024 may persist, with delinquencies and losses in the prime and subprime auto loan segments rising and reaching decade highs. We attribute these increases to more recent vintages having looser credit standards.

Despite expected interest rate cuts, vehicle prices are expected to remain elevated while inflation remains sticky. This combination could keep consumer spending in the sector reined in.

Issuance of ABS backed by esoteric assets improved significantly in 2024, and that strength is likely to persist into 2025 as capital needs in the public infrastructure sector continue to grow. Assets like data centers, fiber, and cell tower financing are likely to see the most growth within nontraditional ABS.

Residential mortgage-backed securities.  U.S. RMBS issuance was $155 billion in 2024, up over 120% from the year prior (itself a lackluster year, with issuance falling 40% from 2022). Traditional indicators such as existing home inventory and home sales, starts, and builds are beginning to improve, but they remain constrained, keeping home prices elevated.

Adding to the supply shortage is the "golden handcuffs" phenomenon, where borrowers choose to remain in homes where they've locked in low mortgage rates. This has resulted in fewer existing home sales, as it's become increasingly advantageous to service larger homes. Mortgage loan origination forecasts appear to be mixed but are moving higher, which would support increased RMBS issuance this year.

The rate for a 30-year fixed-rate mortgage has fallen from its peak of nearly 8% in October 2023--which was the highest rate in over 20 years--but it remains elevated (7.04% as of Jan. 16, 2025). The mortgage rate increased 77 bps during the fourth quarter of 2024, and it's currently well above where it was the week before the Fed kicked off its current rate-cutting cycle (roughly 6.2%, in September 2024).

S&P Global Ratings economists expect the 30-year conventional mortgage rate to fall to 5.5% by the end of 2025 (up from our previous forecast of 5.3%). Such a decline should support increased home sales.

Sales of new single-family homes were up 8.7% year over year in November 2024. Meanwhile, privately owned housing starts and units authorized by building permits were down 3.1% year over year in December. Higher buyer activity will likely support increased RMBS securitization in 2025.

Commercial mortgage-backed securities.  U.S. commercial mortgage-backed securities (CMBS) recorded the highest issuance increase in percentage terms among all of these sectors in 2024. Issuance soared nearly 140%, though it's also the case that volume in 2023 had just recovered to its 2020 level. The impact of rapidly rising interest rates, wider spreads, and broader uncertainty in 2023 subsided last year, resulting in a significant rebound in issuance, particularly in the single-borrower space.

We expect a modest increase in CMBS issuance this year, given signs of improvement in inflation readings and the expectation of further rate cuts (though, there's still uncertainty about the pace and magnitude of those future cuts).

Future demand for office space remains uncertain because of the rise in remote work, and transactions backed by office properties will continue to be the most vulnerable to credit deterioration. We expect significant realized losses in some office-backed single-asset, single-borrower loans in 2025, which would hinder potential issuance growth in the space.

However, other property types have picked up the slack from 2023, with issuance levels for most of them exceeding their previous-year totals earlier in 2024.

Investors are targeting property types with stronger collateral performance (lower delinquencies, the potential for higher rent growth, relatively favorable property valuations, etc.). These include multifamily, mixed-use, and industrial properties; issuance in each category spiked by more than 500% in 2024.

Financing Conditions Are Broadly Unchanged In Europe

Spreads in Europe compressed during the fourth quarter of 2024. Corporate yields broadly moved sideways--they moved lower for European investment-grade companies and higher for speculative-grade ones--while government yields in the region tightened by 20 bps.

Money supply continues to be restrictive, and credit standards tightened in the fourth quarter for large enterprises, mainly from German and French banks following heightened political uncertainty. The leveraged loan distress ratio kept falling in the fourth quarter--to 2.7% from 3.7% the quarter before--as the pace of defaults stabilized in the second half of the year (despite Europe being the only region globally to see defaults rise between full-year 2023 and full-year 2024).

Table 6

The European speculative-grade market ended 2024 with a solid amount of activity

European speculative-grade issuance increased to €43 billion in the fourth quarter--25% higher than the €34 billion issued the previous quarter. Issuance was concentrated in the 'BB' rating category, which accounted for 55% of speculative-grade issuance overall. Issuance for the 'B' rating category was resilient, and there was some issuance for the 'CCC' category, which had seen zero issuance the previous quarter.

The top two speculative-grade issuers were:

• U.K.-based high technology issuer Belron UK Finance PLC ('BB-' debt rating), with five-year, €2.1 billion senior secured notes at a 5.2% yield-to-maturity; and
• Germany-based automotive issuer IHO Verwaltungs GmbH ('BB+' issuer credit rating), with 6.5-year, €2.1 billion floating-rate senior secured notes rated 'BB-'.

European investment-grade issuance fell 28% between the third quarter of 2024 and the fourth quarter, to €120 billion--continuing its gradual decline from the stellar first-quarter figure. Much of the decline is attributable to the 'A' and 'BBB' rating categories, which together accounted for 82% of investment-grade issuance overall.

Eleven of the 15 largest investment-grade issuers in the fourth quarter were financing institutions. U.K.-based HSBC Holdings PLC ('A-' issuer credit rating) topped the list with a cumulative €6.5 billion in floating-rate global notes with an average tenor of 6.8 years. Next on the list was transportation issuer DSV Finance B.V. ('A-' issuer credit rating), which issued €5.4 billion medium-term notes at a 3.3% yield-to-maturity.

European rated nonfinancial bond issuance in the fourth quarter totaled €73 billion, down 9% from the third quarter. Utilities (€13 billion), consumer products (€9 billion, up from €4 billion a quarter before), high technology (€8 billion), and transportation (€8 billion) led in the fourth quarter. The metals, mining, and steel sector had a strong quarter of issuance, while health care and real estate lagged.

Rated bond issuance by European financial services entities declined 29% in the fourth quarter, to €102 billion. Market activity slowed, particularly in insurance and for nonbank financial institutions.

Table 7

European structured finance volume was up 16% in 2024 because of strong securitization volumes

Structured finance volume in Europe grew 16% last year because of robust increases in securitization markets, where issuance hit a new high for the period after the global financial crisis. Meanwhile, covered bond issuance fell roughly 9%. Investor-placed securitization was up across all major sectors, while CLO and RMBS had the highest volumes and year-over-year growth (see chart 15).

We expect issuance to remain elevated in 2025, likely reaching last year's record level. Bank-originated issuance hit a 12-year high in 2024, and that strength will likely continue in 2025 now that banks no longer have access to central bank liquidity schemes such as targeted longer-term refinancing operations (TLTROs).

Furthermore, securitization as a means for banks to manage their balance sheets by selling larger portions of capital structures would also positively influence deal sizes and issuance volume. However, as customer deposits have recently rebounded, it remains to be seen how much funding banks may need.

Covered bonds.  After a strong start to 2024, European covered bond issuance slipped below the record pace of 2023 during the second quarter, in part because of a lull in June stemming from wider market volatility tied to the election in France--the largest market in Europe for covered bond issuance. However, activity continued to moderate in the second half, and it ended the year down roughly 9% from full-year 2023. (That said, European covered bond issuance in 2023 had set a record, and it remained elevated in 2024 relative to most of the past decade).

While issuance fell last year, covered bonds continue to be a valuable source of funding strength and diversification for banks, and central banks are typically large holders of securities, particularly during quantitative easing. In addition, covered bonds remain insulated from many global market disruptions, and normalizing central bank policy in Europe has recently brought more issuers to the market.

That said, increases in real wages have led to a rebound in bank deposits, while lending remains subdued. And unsecured funding conditions have largely improved (though it somewhat depends on the jurisdiction), which could otherwise reduce demand for secured funding sources such as covered bonds. Higher European covered bond issuance over the past few years is largely because of favorable borrowing costs, given higher rates.

The European Central Bank's TLTROs--a program to offer longer-duration loans at favorable costs--have also now matured, likely reducing some issuers' need for new funding sources. Widening spreads in the broader European covered bond markets may mean that issuers favor securitization for now.

Leveraged loans and CLOs.  Like in the U.S., primary issuance of leveraged loans in Europe picked up substantially in 2024: It was up 140% year over year, from levels in 2023 that the region hadn't seen in over a decade. CLO issuance follows the trend in leveraged loan origination volume with a lag of about four quarters. As such, we expect that CLO volumes will continue to lead securitization volumes in Europe.

With the substantial increase in leveraged loan originations, the packaging of European CLOs increased 69% in 2024, which we attribute to continuous spread tightening in 2024 relative to the year prior and to increased new loan issuance. The spread tightening on new CLO issuance also spurred refinancing and resets of outstanding transactions. There were 85 refinancings or resets in Europe last year, compared with just five in 2023.

Residential mortgage-backed securities.  European RMBS issuance nearly doubled in 2024 after having fallen roughly 20% in 2023. The jump stemmed mainly from a rise in U.K. issuance thanks to a return of large legacy refinancings and a greater share of bank originations in RMBS. France, Germany, Ireland, and Luxembourg also saw significant issuance increases in the sector.

While mortgage originations in the U.K. and other European markets remain subdued, recent forecasts suggest improvements in lending growth this year across all categories.

Asset-backed securities.  European ABS also contributed to the region's increased structured finance issuance in 2024, with auto loan and lease collateralized transactions continuing to lead the way. However, 2024 was also a record year for consumer ABS (personal loan ABS, credit card and student loan ABS, etc.).

ABS issuance growth was strongest in France, Spain, and Italy, as well as in Belgian auto and other consumer ABS. Resilient consumer spending in the eurozone has been the main driver of the region's economic growth. Real income growth continues to accelerate in conjunction with slowing inflation, though consumer confidence indicators remain weak.

A Moderate Quarter To End Emerging Markets' Strongest Year For Issuance

Corporate spreads in the emerging markets remained historically tight at the end of 2024. However, both sovereign and corporate yields rose in the fourth quarter, given strong macro developments in the U.S. and the likelihood that fewer rate cuts from the Fed will translate to more caution from domestic central banks in the emerging markets with respect to future monetary policy easing.

Corporate yields in the emerging markets remain elevated--especially for investment-grade companies--while they've reached historically neutral levels (at roughly 8%) for speculative-grade issuers.

Further tightening in global financing conditions and a stronger U.S. dollar could be detrimental to the refinancing needs of companies in the emerging markets, as roughly 80% of their debt (with upcoming maturities) that is rated on the global scale is dollar-denominated. The percentage of rated speculative-grade maturities needing to be refinanced, however, will remain contained, at 20% for 2025.

Table 8

Corporate issuance in the emerging markets slowed in the fourth quarter of 2024 to $22 billion, down 20% from the quarter before. Investment-grade issuance was entirely responsible for the decrease, with speculative-grade issuance rising 34% from the previous quarter to $12 billion (owing to strong performance from the 'BB' rating category).

Issuance from the investment-grade 'A' rating category was the strongest it has been since the second quarter of 2021, while issuance in the 'BBB' category was the weakest since the third quarter of 2023.

Topping the list of emerging-market corporate entities issuing rated debt was high technology issuer Alibaba Group Holding Ltd. ('A+' issuer credit rating), which issued nine-year, $5 billion bonds at an average yield-to-maturity of 4%.

The high technology and transportation sectors posted very strong quarters of issuance, accounting for 55% of nonfinancial corporate issuance overall. Issuance in the two sectors totaled $14 billion, just shy of the figure for the previous quarter. Nonbank financial institutions led financial services issuance (accounting for 34% of the total), with $8 billion. Banks showed resilience.

Emerging-market issuance in 2024 was the strongest of any year in our records. The full-year total, at $2.09 trillion, was up 19% from 2023, and China accounted for the lion's share (86%), with largely unrated issuances.

In China and in EEMEA (Eastern Europe, the Middle East, and Africa), full-year 2024 issuance was roughly 145% of the average for 2016-2023. In Latin America, full-year 2024 issuance was 125% of the average. And in EM Asia, full-year 2024 issuance was just 89% of the average.

Table 9

Table 10

Total international public finance issuance broke through in 2024 to a new record after a blockbuster fourth quarter

After declining through the first half of 2024, international public finance issuance more than made up that ground in the second half, finishing the year at a record $1.35 trillion. The fourth-quarter total of $375 billion also shattered the previous fourth-quarter record set the year before ($283 billion).

Chinese issuers accounted for 77.7% of the full-year 2024 issuance--that's lower than the 82% figure in 2023, but Chinese issuers continue to be the main contributor to international public finance bond issuance overall. Chinese issuance alone in the international public finance sector is now over $1 trillion.

Data on non-U.S. public finance volume isn't reliable for determining the true amount of overall borrowing, but these numbers can still point to major trends. In the four years prior to 2020, issuance was extremely high (over $630 billion per year, on average). In 2020, issuance exceeded $1 trillion for the first time, and international public finance has since remained a $1 trillion bond issuance market, with growth every year except in 2022.

The trend in structured finance issuance outside of the U.S. and Europe continued to worsen throughout 2024

Structured finance issuance outside of the U.S. and Europe decreased 16% in 2024. There were declines in nearly every region, but trends were mixed across subsectors--the exceptions were Australian securitizations, Japanese ABS, and, slightly, Latin American ABS.

Australian ABS led issuance volumes in the region, with 37% growth in 2024. The ABS sector has gained a significant share of securitized volume over the past few years, and we believe it will continue in 2025 as the strains on consumers--such as high interest rates and persistent inflation--continue to ease.

New asset classes that have become increasingly common in the U.S. over the past few years--like data center ABS--might also contribute to issuance growth in 2025.

There was also strength in Australian RMBS issuance in 2024--with it rising over 25%, supported by a large uptick in prime RMBS. More nonbanks are originating self-managed superannuation fund (SMSF) loans to diversify their portfolios, and they're becoming more prominent in Australian RMBS transactions.

Despite elevated interest rates (which continue to weigh on housing affordability), low unemployment in Australia and an improving economic outlook will likely support mortgage originations, particularly as the rental market remains tight.

Even with the growth in RMBS issuance, Australian structured finance issuance was roughly flat in 2024 from the previous year because of a 66% decrease in covered bond issuance.

Some sectors outside the U.S. and Europe had little to no structured finance issuance, such as CMBS and structured credit. There was also a nearly 50% pullback in covered bond issuance in 2024 outside of the U.S. and Europe, with no issues from New Zealand and just one issue in Japan; there had been atypically large amounts of covered bond issuance from some countries in recent years.

We believe covered bond issuance outside the U.S. and Europe will improve in 2025, partly because of the lackluster volumes in 2024. It should also improve if interest rates and inflation continue to fall and labor markets remain tight.

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