Via Merrill Lynch Research:
- Demand creates supply. High grade new issue supply fell to $95bn in April from $121.3bn in March and $110bn in April of last year. Nevertheless, on a YtD basis high grade issuance for the first four months of the year, at $405bn, remains the highest on record going back to at least 1998. The favorable market conditions of low interest rates and tighter spreads are the likely catalysts for the record issuance volumes so far this year. However, we expect conditions to worsen as data improve and interest rates rise. Hence, May issuance volumes should enjoy a strong momentum to start the month as US companies are coming out of the earnings-related issuance blackouts, before potentially deteriorating as interest rates go up, for a total issuance of $70 to $90bn. The precise timing of the turn in conditions remains uncertain and completely data dependent. Globally (rather than just in the US), based on bonds entering our benchmark indices, gross and net corporate supply YtD have been $556bn and $220bn in high grade and $192bn and $74bn, respectively, in high yield. Based on typical seasonal patterns, the YtD gross high grade supply corresponds to a $1.63tr annualized rate, compared to $1.49tr issued last year.
- Relative to last year, YtD US-market issuance has increased for US financials, DM and EM Yankees. At the same time, supply from US non-financials actually fell from $137bn last year to $125bn this year. This was especially pronounced in April, when US non-financial issuance fell to $20bn this year from $44bn in April of last year. In part due to less US industrial supply, issuance in April continued to be more weighted towards the front-end. Also note that supply from EM issuers rose this year relative to 2013 both on an YtD basis as well as for the month of April. Finally, new issue concession have remained low in April, averaging 2bps for the month, compared to 2bps average for the month of March and 3bps average in February