IGM Global Credit Snapshot

HIGHER ISSUANCES AND HIGHER NICS
MARCH 2021

• Global issuance volumes picked up pace over March, with Q1 volumes strong
• European and US high yield markets chalked up record first quarters.
• Concerns over rising inflation and in turn higher US Treasury yields continue to entice issuers to fund sooner than later
• However, IGM's sentiment metrics, which largely saw average NICs track higher, does suggest some selective investor resistance.
• For specific regional highlights see below.
  
  
  
  

US CREDIT ISSUANCE TRENDS

The month of March and the first quarter ended strong with the US IG ex-SSA tally for the month coming in above US$200bn or at US$201.200bln. This marked only the fourth time in history ex-SSA monthly issuance has topped the US$200bln mark and makes it the second most prolific ex-SSA issuance March on record, behind last March's US$258.17bln. It also ranks as the busiest issuance month of this year and the fourth busiest ex-SSA issuance month of all time.

The US$456.4bln priced over the first three months of this year otherwise makes the first quarter of 2021 the third busiest ex-SSA issuance quarter of all time, trailing only the second quarter of 2020 and the first quarter of last year. It also ranks second among first quarters of any year.

Milestones were made not only in the high-grade issuance market, but the US high yield market where the first quarter of 2021 ended with record high yield issuance for the month of March, as well as for volume in a quarter. March volume was US$60.315bn, while quarterly volume totaled US$149.955bn.

Looking ahead, respondents to our issuance polls are predicting that some US$108bln average of US IG ex-SSA supply will be priced in April. Dropping last year's COVID flurry from the equation, the 10-year April ex-SSA issuance average comes in at a US$82.286bln.

April's robust estimates demonstrate the changing landscape in the new debt issuance market, where the lingering effects of the COVID-19 pandemic are still having an impact on the financing decisions of corporations here and abroad. Couple that with issuers' concern over the thought of impending rising inflation as a result of massive government stimulus programs, which in turn has US Treasury yields on an upward trend, many are being prompted to tap the market now before rates go any higher.

EUROPEAN CREDIT ISSUANCE TRENDS

Reflecting familiar seasonal patterns, the European credit market picked up pace in March with issuers raising a total of EUR164.305bn via EUR denominated debt sales (all asset classes/ratings), capping off the busiest Q1 ever. That marked a huge 43% increase on February and was even more impressive given that the final week of March produced just EUR6.925bn in supply as markets wound down for the Easter break.

Corporates (ex HY): Rising supply came as issuers emerged from earnings enforced blackout while also feeling a greater sense of urgency to lock in funding amid palpable concerns over rising rates and volatility. The upswing in supply brought with it some selective signs of indigestion and also increased investor resistance. That was evidenced by a rise in average NICs and a fall in average cover ratios.

SSA: Issuers stepped up activity to meet ongoing pandemic related needs, accompanied by a rise in average NICs and a fall in average cover ratios. The European Union remained the volume booster, raising a further EUR22bn via its SURE programme on huge demand of EUR182.5bn+, confirming insatiable investor appetite for large/liquid benchmark paper in ESG format. The Republic of Italy issued its inaugural Green bond.

FIG: Activity in the unsecured markets was little changed from February as high take up at the ECB's latest TRLTO III operation kept banks awash with liquidity. In line with the other asset classes, cover ratios also eased.

Covered: Activity rose but from a very low base after February had produced just EUR2.05bn.

HY (Corporate) - An active March helped cap off a hectic Q1 to drive the second busiest quarter for EUR HY post-financial crisis. Almost a quarter of March EUR HY issuance was ESG.

APAC CREDIT ISSUANCE TRENDS

After a fairly muted first half of the month when heightened volatility in broader markets weighed on issuance volumes, the APAC US$ primary bond market bounced back in the second half of March 2021, with the month producing US$41.189bn of regional supply overall (including Japan).

That marked an increase from the US$36.005bn that priced the previous month of February, and smashed the US$10.329bn of issuance which managed to scrape over the line in March 2020, when the impact from the spread of Covid-19 was at its peak. March 2021 actually ended up boasting the busiest March in terms of issuance volume since the same month in 2017 when US$44.085bn priced.

From a quarterly perspective, Q1 2021 closed out at an impressive US$157.783bn, boosted significantly by the record breaking month of January 2021 which produced US$80.589bn of regional US$ issuance when the primary market was still firing on all cylinders in the new year, equating to over half of the Q1 2021 total. That comfortably beat the US$122.18bn which hit the screens in Q1 2017 which previously boasted the most active quarter until now. Q1 2021 also comfortably smashed the US$70.625bn which priced in Q4 2020.

Asia Pacific investment grade US$ issuers were presented with a fresh window of opportunity in the second half of March 2021, selling US$6.35bn of combined issuance in the final three days of the month (ex-Japan). Issuers proved keen to seize on the economic funding costs available, as solid demand from investors helped keep average new issue concessions in negative territory for a third consecutive week.

While all-in funding costs are clearly higher in the wake of the prolonged sharp rise of US Treasury yields, many issuers appeared to take the view that the most cost effective strategy is to pull the trigger now rather than later, when it could become even more expensive in the future as the rapid vaccine rollout and huge US stimulus plans underpin an economic recovery.

Asia Pacific high yield US$ issuers also returned to the primary bond market in the final weeks of March after a challenging preceding number of weeks. That coincided with renewed investor enthusiasm to add credit risk as reflected by comfortably oversubscribed order books which provided a springboard for issuers to lock-in some attractive funding costs.

The rebound in high yield issuance did not extend to every sector however, with Chinese property developers, once considered the darlings of the Asian high yield market, struggling to live up to that past. China Fortune Land Development's high-profile liquidity problems and subsequent default, rating downgrades and increased regulatory scrutiny on the industry continued to weigh on sentiment.

That in turn had a devastating impact on offshore primary issuance volumes in March 2021 where Chinese high yield and unrated property developers priced US$1.701bn of US$-denominated bonds, equating to just 15% of total high yield and unrated issuance from Asia Pacific issuers during the same period. That marked a sharp decline compared to the previous month when mainland developers made up 34% of all APAC high yield and unrated US$ supply in February 2021, despite the fact that the Chinese Lunar New Year break largely kept a lid on offshore supply for around half of the month.

March's contribution was also a far cry from January 2021 when Chinese high yield and unrated property companies sold a combined US$12.575bn of offshore bonds, equating to 69% of the total raised by similar rated APAC issuers, when the market was still firing on all cylinders in the new year..

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