After a surge in rated corporate bond issuance in the first quarter of 2017, both rated and unrated issuance slowed marginally in the second quarter. The Federal Reserve once again raised interest rates in June and provided more detail on its plan to gradually wind down its $4.5 trillion in asset holdings toward the end of the year. Despite the likelihood that tax reform adverse to debt won't pass in the U.S. this year, S&P Global Fixed Income Research's 2017 forecast for bond issuance has been revised downward since last quarter as prospects have diverged between the U.S. and Europe on one hand and the rest of the world (notably China) on the other. Considering the issuance totals in the first half of the year, along with macro political trends expected for the remainder of the year, issuance totals in 2017 are likely to slightly decline from 2016. We feel that these factors, when combined with our quantitative frameworks, will result in global bond issuance finishing 2017 about 5.3% lower than in 2016.
We feel issuance in the second half of the year could still prove volatile on a monthly basis but will ultimately follow the historical norm of representing a slightly smaller proportion of the annual total compared with the past six months. Positive global trends for issuance are coming largely from the U.S. and Europe, including the European Central Bank's (ECB's) quantitative easing (QE) program and the increasing likelihood that debt-deterring elements of corporate tax reform in the U.S. will not be a material prospect for the remainder of this year, if at all. Additionally, expectations for slightly stronger GDP growth in the U.S. and Europe should keep issuance from noticeably declining in the near term. Potential risks to global bond issuance in the developed markets are largely limited to any potential fallout from the Brexit process; however, with the snap election in the U.K. and the French presidential election over, there is a broader sense of clarity regarding future negotiations, which should be less confrontational than initially feared. With most of the initial market reactions to Brexit over, both the euro and pound are expected to modestly strengthen relative to the dollar, stabilizing our dollar-based issuance figures in the region (assuming all else to be equal).
Working against these positive to benign factors, the reduction in issuance from China is enough to lower global issuance growth prospects. The government there has taken steps to rein in leverage over the past nine to 12 months, and alternative funding sources could replace the bond market in certain sectors. Meanwhile, Latin American issuance has improved somewhat from 2016 but is still well below that of prior years. Recent events in Brazil are only adding political risk to an already weak economy, and we anticipate negative effects on regional issuance as a result.