US Dollar credit supply: Larger corporate net supply expected in 2022

USD Corporate net supply will increase on the back of lower redemptions in 2022, despite forecasting slightly lower USD supply of US$650bn.

Executive summary

Lower corporate supply expected in 2022, but increased net supply

Rather low corporate supply in October at just US$28bn, penciling in the lowest monthly supply seen this year. Supply is now sitting at US$608bn YTD, largely in line with the US$611bn supplied in 2019 on a YTD basis. We expect supply will reach up to US$680bn by the end of the year. This places net supply at around US$350bn, after redemptions of US$332bn.

For 2022, we expect supply to fall to around the US$650bn mark. This would likely pencil in the lowest supply in the past seven years. Redemptions are also lower in 2022, at just US$265bn, which will increase net supply up to US$385bn. This reduces the technical strength of USD credit. This is another reason for our expectation that USD spreads will underperform EUR spreads in 2022.      

The cross-currency basis swap has widened over the past two weeks, making it somewhat more expensive to swap, however, USD spreads have underperformed against EUR. This opens up more cost-saving advantages for US corporates to issue Reverse Yankee bonds. October saw €10bn incorporate Reverse Yankee supply. We expect USD spreads to underperform in 2022. The technical picture in EUR is considerably stronger with a further reduction in net supply expected and the substantial ECB support to continue.

Financial net supply expected to total US$160bn by year end

Financial supply amounted to US$69bn in October. It is the highest month of supply this year. This is considerably higher than the average US$35bn seen over the past number of years. On a YTD basis, supply is now sitting at US$499bn. Redemptions are penciled in at US$481bn for 2021, meaning net supply should be very manageable this year. Redemptions are similar next year at US$483bn, but increase substantially in 2023 up to US$520bn. 

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