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Credit Trends: Global Financing Conditions: Bond Issuance Remains Strong Despite An Expected Modest Contraction


Default, Transition, and Recovery: Defaults Drop In June


Default, Transition, and Recovery: 2023 Annual European Corporate Default And Rating Transition Study


Default, Transition, and Recovery: 2023 United Kingdom Corporate Default And Rating Transition Study


Default, Transition, and Recovery: 2023 Annual Global Leveraged Loan CLO Default And Rating Transition Study

Credit Trends: Global Financing Conditions: Bond Issuance Remains Strong Despite An Expected Modest Contraction

Chart 1


Table 1

Global Issuance Summary And Forecast
(Bil. $) Industrials* Financial services Structured finance§ U.S. public finance International public finance Annual total
2010 1,283.0 1,488.0 895.0 433.3 306.9 4,406.1
2011 1,340.9 1,333.7 942.4 287.7 336.3 4,241.0
2012 1,778.1 1,567.1 786.1 379.6 338.7 4,849.6
2013 1,910.4 1,505.5 803.5 334.1 316.3 4,869.7
2014 2,075.3 2,016.8 905.3 339.0 340.0 5,676.5
2015 2,029.8 1,754.3 905.0 397.7 446.1 5,532.8
2016 2,270.7 1,934.1 807.6 444.8 738.8 6,195.9
2017 2,286.9 2,108.2 901.8 448.6 541.4 6,287.0
2018 2,036.8 1,995.7 1,062.0 338.9 480.4 5,913.9
2019 2,459.4 2,230.4 1,159.0 426.3 769.7 7,044.9
2020 3,359.0 2,644.2 902.2 484.5 1,131.9 8,521.9
2020H1 1,982.4 1,422.1 453.7 210.4 600.8 4,673.6
2021H1 1,604.7 1,580.6 526.8 223.6 585.3 4,526.5
2021 full-year forecast (year-over-year % change) (12.0) 7.5 20.0 (5.0) (2.0) (0.8)
2021 ranges (20%) to (8%) 3% to 10% 15% to 25% (10%) to 0% (6%) to 3% (6.7%) to 3%
*Includes infrastructure. §Structured finance excludes transactions that were fully retained by the originator, domestically rated Chinese issuance, and CLO resets and refinancings. Sources: Refinitiv, Green Street Advisors, and S&P Global Ratings Research.

S&P Global Ratings Research expects global bond issuance to contract roughly 1% in 2021 (see chart 1). Issuance remained historically strong in the second quarter, with most sectors showing growth over last year's first-half pace. That said, overall global nonfinancial issuance was unable to keep up with the extraordinary $1.1 trillion total from the second quarter of 2020. The high aggregate issuance total from 2020 remains hard to beat, though the 2021 total should still be historically high, likely surpassing 2019 by a wide margin.

Concerns persist over rising inflation in the U.S., which could prompt rising interest rates and possible spillover to other regions. However, S&P Global economists believe the recent jump in inflation to be largely transitory and limited to certain components of the reading. Meanwhile, inflation is not such a concern in Europe, and interest rate differentials between many emerging market countries and the U.S. remain below their long-term averages.

Inflation Takes Headlines, But Not Interest Rates With It

As COVID-19 vaccinations become more widely available and cases generally fall globally, economies have reopened faster than S&P Global economists' previous expectations called for, contributing to the recent increases in inflation readings. That said, inflation expectations for the U.S. have been slightly elevated for the better part of the past six months, boosted in large part by massive fiscal stimulus since the pandemic began. For borrowers, the pandemic and central banks' resultant easing of financing conditions and market access pushed interest rates to new lows. Some correction was to be expected, and inflation worries could move interest rates higher.

In general, however, this has not yet happened. Inflation risks have been most noticeable in the U.S., with the potential to be "exported" to other regions, alongside higher interest rates, if U.S. monetary policy becomes more restrictive. But yields in the U.S. have not increased markedly in the past 12 months. Secondary investment-grade corporate yields have increased only marginally, and to a lesser extent than Treasuries have (see chart 2). In fact, investment-grade corporate and 10-year Treasury yields have fallen from highs in mid-March. Real yields for both corporates and Treasury Inflation-Protected Securities have been negative since the Federal Reserve introduced its suite of liquidity facilities in March 2020.

Chart 2


Yields on speculative-grade bonds in the U.S. are still lower than a year ago, and in many cases continue to trend downward (see chart 3). Stronger growth prospects for the global economy have pushed investors to search for yield and take on more risk. Issuance of high-yield bonds and leveraged loans in developed markets has been tremendous so far this year, with the U.S. combined high-yield bond and leveraged loan total surpassing the investment-grade bond total through June.

Chart 3


The recently higher inflation readings are largely the result of base effects and bottlenecks. Illustrating this, the two-year growth in the Consumer Price Index in the U.S. in June is only slightly ahead of the one-year percentage change (6.1% and 5.3%, respectively) (see chart 4). In fact, the two-year inflation reading is fairly consistent with the range through much of the post-financial-crisis period. For financing conditions, the question is when (and if) interest rates might rise in response to inflation.

Chart 4


With this backdrop, markets are starting to anticipate a move on interest rates by the Fed, but no sooner than roughly the fourth quarter of 2022 (see chart 5). Based on the CME's FedWatch Tool, markets expect the Fed to maintain the federal funds rate through year-end, with rate hikes becoming noticeably priced in only for the second half of next year. With the Fed possibly sitting on the sidelines for at least another 15 months, we don't anticipate interest rates will rise much in the meantime, maintaining debt's attractiveness.

Nonetheless, as the delta variant is illustrating, the COVID-19 threat is not completely gone. If the new virus strain proves a destabilizing force, economies may need to shut down again, putting a damper on the currently heady recovery.

Chart 5


Issuance Projections

We expect nonfinancial issuance to decline 8%-20% this year.  After a strong start in the first quarter, nonfinancial issuance declined in the second quarter to bring the first-half 2021 total to $1.6 trillion, from $1.98 trillion in 2020--a 19% decline. We expect nonfinancial issuance in the remainder of the year to remain near the average second-half totals of the past two years, but it could fall lower if the need for debt subsides more than anticipated, or if inflation rises further and is sustained, leading to a rise in interest rates--though this is not our base-case assumption.

Financing conditions and market appetite for yield remain favorable, with yields in primary and secondary markets still near all-time lows. This has been particularly beneficial for speculative-grade (rated 'BB+' or lower) issuers that have experienced tremendous debt growth this year. The global merger and acquisition (M&A) pipeline remains robust, continuing its rebound that began roughly nine months ago. These tailwinds could help limit the projected decline in issuance this year.

A large portion of the global nonfinancial issuance total from the first quarter was attributable to issuers that had also come to market in 2020. The second quarter was likewise dominated by these repeat issuers. This could indicate many issuers have had their fill of new debt in recent quarters, while the repeat issuers are coming to market to get ahead of potential interest rate increases.

Outside of the U.S. and Europe, we still expect the largest country, China, to see issuance increase in 2021. Last year showed little to no evidence of a bulge in issuance outside of the U.S. and Europe, making for easier totals to exceed. China's economic rebound is expected to lead to an 8.3% growth rate this year on the back of increased vaccinations. Further, the potential refinancing pipeline in China is huge. Roughly $1.15 trillion of bonds is coming due in the second half of 2021 through 2023, and the stock of outstanding corporate debt there has risen by about 14% annually in the past few years.

Financial issuance could increase about 7.5% in 2021.  Even after a particularly strong total in 2020, global financial services issuance was up through June (at $1.6 trillion). Thus far, issuance has remained strong in the U.S. and China. Upside potential for the remainder of the year may center on regions outside the U.S. and Europe. This could lead to a 3%-10% growth rate for financial services issuance this year.

Excess reserves U.S. banks hold with the Fed have historically been a leading indicator of bank issuance. But these reserves increased in 2020 well beyond anything seen historically, which may make this a less reliable indicator. However, banks will need to address these reserves, which could find many uses, including backing further debt issuance.

Additionally, many large banks in the U.S. posted strong earnings growth for the first quarter, which prompted some to issue large amounts of debt in the early parts of the second quarter. A similar trend is expected for second-quarter earnings and early third-quarter bank issuance. The M&A pipeline for global financial services has also grown in recent months, particularly in the U.S.

We expected the European Central Bank's (ECB's) third round of targeted longer-term refinancing operations to cut into bond issuance by banks in the region. Through the first half of the year, this effect was at most modest. European financial institutions (including banks) saw a first-half contraction of just under 2% in euros. But with an appreciation of the euro against the dollar relative to a year ago, the €439 billion total through the first half of 2021 represents a 7.4% expansion in dollars.

Issuance growth from China has been especially strong in recent years, with roughly $200 billion increases in both 2019 and 2020, equating to 46% and 36% annual growth rates, respectively. The healthy refinancing pipeline, with over $1.3 trillion of bonds due 2021-2023, should also support issuance for the remainder of the year.

Global structured finance issuance bounces back with 20% growth in sight for 2021.  Structured finance issuance globally grew 16% year over year in the first half of 2021, totaling $527 billion. Most of the increase is attributable to the U.S., while Europe has struggled to recover in volume, originating more in the first quarter than the second, giving a historically low midyear total. Demand for covered bonds has also been diminishing globally as cheap central bank funding has been injected into the world's major economies in response to the pandemic. Global structured finance issuance is now set to increase 15%-25% by year-end 2021.

Economic projections for year-end 2021 continued to improve in the second quarter. The latest projections from S&P Global economists show GDP improving further by year-end in the U.S. and Europe, while performance is expected to diverge across the remaining regions.

Structured finance issuance in the U.S. is expected to increase this year and to account for most global issuance gains. Each subsector is poised to report solid increases at the end of the year:

  • Asset-backed securities (ABS) issuance should continue to grow, underpinned by elevated used-vehicle prices and federal support in the auto sector, coupled with returning demand for both Federal Family Education Loan Program (FFELP) student loans and more esoteric collateral, such as consumer product and equipment leases.
  • The residential mortgage-backed securities (RMBS) sector has recorded some of the most pronounced growth within U.S structured finance, with home price appreciation expected to remain positive through year-end, supporting further originations.
  • Commercial mortgage-backed securities (CMBS) issuance has returned to 2019 levels and should remain elevated through year-end. Structured credit originations have already reported triple-digit growth amid the rise in leveraged loan volume.

Meanwhile, European structured finance issuance has struggled to rebound, leading us to expect lower volume in 2021. Securitizations out of the region have slowed in comparison with 2020, while the pace of originations continues to diverge among countries and sectors. Covered bond issuance remains deflated as credit institutions draw down large volumes of cheap term funding from central banks, reducing capital market needs. We do not expect this to change by year-end.

Outside the U.S. and Europe, we expect issuance to increase overall in 2021, led by securitizations out of Australia, Japan, and Latin America. Covered bonds have suffered across the board, and we expect them to remain depressed through the end of the year.

U.S. public finance issuance is set to decline from an all-time high set in 2020.  We maintain our forecast for U.S. public finance issuance of about $460 billion in 2021--about a 5% decrease from 2020's all-time high of $484 billion. The most recent U.S. fiscal stimulus included direct assistance to states and municipalities, which could offset some need for new issuance. And as vaccination rates increase and economic activity resumes, tax receipts could increase, also lowering demand for issuance. Already it appears tax revenues have been increasing slowly after plummeting in mid-2020.

On the other hand, if an infrastructure package includes Build America Bonds (BABs), issuance could surprise to the upside. The bipartisan infrastructure package has not yet been derailed, leaving a wide range of potential stimulus scenarios for the next few years. However, even if Congress agrees on a deal, it's unlikely to get moving until the end of this year, so the BAB program--if it happens--would more likely be a tailwind to 2022 issuance.

International public finance is likely to contract slightly but remain high.  In 2020, international public finance issuance surpassed $1.1 trillion. This was the first time it broke the $1 trillion mark. With the need for fiscal support still strong in many regions, we expect reliance on the public sector and banking systems to continue, leading to a strong annual total that is already on track to exceed $1 trillion in new issuance.

China dominates this sector's issuance and is showing growth thus far in 2021, though offset by a decline in issuance outside of China. Two-thirds of the first-half total of $585 billion was attributable to China. Coupon rates remain historically low, favoring borrowers and encouraging more issuance, but they have been rising in most regions.

2021 summary

Global bond issuance in the first half of 2021 totaled $4.5 trillion, down 3.2% from the same period in 2020. A majority of sectors showed growth, led by global structured finance (up 16%), followed by global financial services (up 11%) and U.S. public finance (up 6.3%). Meanwhile, international public finance finished the first half down 2.6%, and nonfinancial corporates are down about 19%. These figures cover only long-term debt (maturities greater than one year) and exclude debt issued by supranational organizations. All references to investment-grade (rated 'BBB-' or higher) and speculative-grade (rated 'BB+' or lower) debt refer to issues rated by S&P Global Ratings.

U.S. Financing Conditions Stay Opportunistic

U.S. investors have been bullish this year amid vaccinations and reopenings. Financing conditions reached their most opportunistic ever in the latter part of 2020, with yields on Treasuries reaching all-time lows and corporate yields following suit. Yields in the municipal market also dipped, and collateralized loan obligation (CLO) spreads on 'AAA' traches fell below their pre-pandemic levels around the start of this year, making for strong issuance totals across most asset classes in the first six months.

Borrowing costs have risen somewhat as Treasury yields have risen, but not to the same extent. Equity markets also remain robust, with the S&P 500 returning roughly 16% through June; its market capitalization has soared in the past 12 months. Financing conditions on the whole have rarely been this favorable across so many asset classes and across so many levels of credit quality (see table 2). Distressed bonds and loans have decreased to only about 2% of the speculative-grade segment as investors relentlessly search for yield.

Inflation has been running higher than many initially expected, and with such low yields across the board, even 'B' rated corporates are seeing negative yields (as calculated by taking the secondary market yields for corporates minus the year-over-year changes in the Consumer Price Index). This speaks both to the incredibly low nominal yields for most asset classes recently as well as to the assumption that recent increases in inflation will likely prove transitory.

For now, we expect favorable financing conditions to continue over the next several months, barring any unforeseen shock or an unexpected sustaining of higher inflation. Even if borrowing costs were to rise, they have some way to go before returning to the benign levels seen through most of the 2011-2019 period. Many issuers have already taken advantage of the favorable conditions over the past nine months to refinance existing debt on better terms, leaving a smaller amount of upcoming debt to be refinanced, particularly for speculative-grade firms.

Table 2

Indicators Of Financing Conditions: U.S.
Restrictive Neutral Supportive 2021* 2020* 2019*
Currency component of M1 plus demand deposits (year-over-year % change)* x 54.4 25.8 2.9
M2 money supply (year-over-year % change)* x 13.8 21.9 4.3
Triparty repo market--size of collateral base (bil. $) x 2,738.3 2,305.3 2,364.1
Bank reserve balances maintained with Federal Reserve (bil. $)* x 3,872.4 3,217.6 1,576.3
Three-month nonfinancial commercial paper yields (%) x 0.05 0.17 2.26
Three-month financial commercial paper yields (%) x 0.10 0.22 2.22
10-year Treasury yields (%) x 1.45 0.66 2.00
Yield curve (10-year minus 3-month) (bps) x 140 50 (12)
Yield to maturity of new corporate issues rated 'BBB' (%) x 2.50 2.85 3.44
Yield to maturity of new corporate issues rated 'B' (%) x 5.01 7.08 6.90
10-year 'BBB' rated secondary market industrial yields (%) x 2.54 2.85 3.81
5-year 'B' rated secondary market industrial yields (%) x 4.74 9.16 7.22
10-year investment-grade corporate spreads (bps) x 98.9 177.5 142.5
5-year speculative-grade corporate spreads (bps) x 357.3 635.9 415.6
Underpriced speculative-grade corporate bond tranches, 12-month average (%) x 4.3 10.8 15.8
Fed Lending Survey for large and medium-size firms§ x (15.1) 41.5 (4.2)
S&P Global Ratings corporate bond distress ratio (%) x 2.3 12.7 6.8
S&P LSTA Index distress ratio (%) x 1.8 12.5 3.2
New-issue first-lien covenant-lite loan volume, rolling 3-month average (% of total) x 89.6 82.7 77.5
New-issue first-lien spreads (pro rata) x 309.4 298.2 383.3
New-issue first-lien spreads (institutional) x 373.1 480.7 403.7
S&P 500 market capitalization (year-over-year % change) x 41.7 5.0 6.0
Interest burden (%)† x 7.9 7.9 7.9
*Through May 31, 2021. §Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices for large and medium-size firms; through first-quarter 2021. †Interest burden as of March 31, 2021. Data through June 30, 2021. Sources: Economics & Country Risk from IHS Markit; Federal Reserve Bank of New York; LCD, an offering of S&P Global Market Intelligence; and S&P Global Ratings Research.
Strong U.S. corporate issuance in nearly every rating category

With borrowers eager to lock in low financing costs and strong demand for credit amid investors' search for yield, rated U.S. corporate issuance surged to $417.7 billion in the second quarter (see chart 6). Issuance has slowed since March but remained strong for each month of the second quarter. Every rating category except for 'AAA' had strong issuance during the quarter. Nonetheless, corporate issuance in the U.S. is still lower than in 2020, given the massive second-quarter totals last year.

Speculative-grade issuance totaled $115.4 billion, nearly matching the record for quarterly issuance set in second-quarter 2020. Total speculative-grade issuance year to date reached $231.5 billion, the strongest six-month total on record. The $45.4 billion of 'B' issuance and $14.5 billion of 'CCC'/'C' issuance were each near their respective quarterly records.

The bulk of issuance was in the 'A' and 'BBB' categories, with $122.8 billion and $132.8 billion, respectively, or 61% of all rated second-quarter issuance. Investment-grade issuance was strong at $302.3 billion.

Chart 6


Rated nonfinancial issuance totaled $211.4 billion. Issuance in the high technology, retail and restaurants, health care, utility, and media and entertainment sectors accounted for nearly three-fifths of all rated nonfinancial issuance, with $40.4 billion, $22.5 billion, $21.4 billion, $20.6 billion, and $20.3 billion, respectively.

Rated financial issuance totaled $206.3 billion, the most quarterly issuance since second-quarter 2007. Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, and Citigroup Inc. combined accounted for 41% of this issuance (see table 3).

Bank of America Corp. topped the list of issuers in the second quarter (see table 3) with a total of $28.2 billion of senior unsecured notes across six bond offerings.

Table 3

Largest U.S. Corporate Bond Issuers: Second-Quarter 2021
Issuer Sector (Mil. $)

Bank of America Corp.

Banks and brokers 28,232.0

JPMorgan Chase & Co.

Banks and brokers 22,796.6 Inc.

Retail/restaurants 18,437.3

Goldman Sachs Group Inc.

Banks and brokers 16,985.5

Morgan Stanley

Banks and brokers 10,500.0

Citigroup Inc.

Banks and brokers 8,650.0 Inc.

High technology 7,973.5

UnitedHealth Group Inc.

Insurance 6,977.7
Saudi Aramco Global Sukuk Ltd. Oil and gas 6,000.0

Organon & Co.

Health care 5,589.0

Toyota Motor Credit Corp.

Financial institutions 5,504.5

Nvidia Corp.

High technology 4,990.5

Astrazeneca Finance LLC

Financial institutions 4,845.2

Coca-Cola Co.

Consumer products 4,632.7

General Motors Financial Co. Inc.

Financial institutions 4,494.5
Includes issuance from Bermuda and the Cayman Islands. Sources: Refinitiv and S&P Global Ratings Research.
U.S. leveraged loans had one of their strongest first halves ever

U.S. leveraged loan issuance in the second quarter eased from the record highs of the first quarter, though the market remained active with $145.8 billion of institutional loan issuance--the second-highest quarterly amount over the past three years, behind only the $184.5 billion in the first quarter (see chart 7).

Strong demand continues amid the reopening of the economy and the vaccination rollout, and as the specter of inflation puts the floating-rate asset class in focus. CLO issuance was roughly $39 billion in the quarter through June 29 and reached a whopping $78.9 billion in the first half of the year--the highest reading for any comparable period. On top of that, retail investors continued to pour money into the loan market.

Chart 7


LCD, an offering of S&P Global Market Intelligence, estimates net inflows into loan mutual funds and exchange-traded funds totaled $13 billion in the second quarter and $26.9 billion in the year to date (see chart 8). Taken together, total visible demand was $52.1 billion in the quarter, marking the second-highest sum since LCD began tracking this data 20 years ago, behind only the record-breaking $53.7 billion in the first quarter.

Chart 8


Bolstering issuance were deals supporting buyouts and strategic acquisitions, which totaled $83.9 billion, or 58% of the total quarterly volume. Those deals accounted for the second-highest dollar volume on record, behind $84.5 billion in the second quarter of 2018 (see chart 9).

Chart 9


New leveraged buyouts led the way at $41.5 billion, the highest quarterly volume since the Great Financial Crisis. The $78.4 billion of total loan supply from buyouts in the first half of the year was the second highest for any comparable period on record, behind $97.2 billion in the first half of 2007.

Overall, issuance in the second quarter tilted toward lower-rated issuers, as a record 43% came from borrowers with at least one 'B-' rating (for context, the share of outstanding loans rated 'B-' has increased during the pandemic and is currently at an all-time high of 25%) (see chart 10). Of those new-issue deals, 67% were acquisition related (with 43% tied to leveraged buyouts), 15% were for refinancing, and 18% fell under other categories. In the first quarter, 26% of 'B-' issuance was for buyouts and 42% supported refinancing.

Chart 10


In the year to June 30, roughly $133 billion of loans have come from borrowers with at least one 'B-' rating--more than the full-year totals in 2020 and 2019. Meanwhile, the share of deals issued from 'B'/'B+' rated borrowers and those with at least one 'BB-' rating dropped quarter over quarter to 24% and 17%, respectively, from 37% and 21%.

The spread gap between 'B-' issuers and 'B' issuers has narrowed to 18 basis points (bps), the slimmest margin in at least five years and down from 52 bps in the first quarter. Spreads for the higher-rated sample widened to 420 bps in the second quarter from 375 bps in the first quarter. The 'B-' batch has been steadier by comparison, widening to 438 bps from 427 bps. A closer look at the cohorts shows also that issuance from 'B' borrowers dropped 48% to $35.7 billion in the quarter, while 'B-' volume fell 10% to $62.9 billion.

Although issuance of deals backing shareholder dividends fell to the lowest in four quarters, it was still a hearty $13.8 billion, and through the end of June, dividend recapitalization volume for private-equity-owned borrowers was $32.4 billion, or 16% of total volume (see chart 11). This was the second-highest reading in dollar terms for any comparable period on record, just a touch below $32.5 billion in the first half of 2013.

For new-issue volume broadly, 2021 is on pace to be the busiest year on record, with $330.3 billion of institutional loan volume printed through June 30.

Chart 11

U.S. public finance issuance had a strong first half

U.S. municipal bond issuance in the second quarter of 2021 was $112.9 billion, up from $110.8 billion in the first quarter but down from $115 billion in the second quarter of 2020 (see chart 12). Issuance averaged $37.6 billion each month, up slightly from the monthly average in the first quarter but below the last three quarters of 2020. Issuance in the second quarter averaged $107.6 over the past 10 years, with the highest total in 2016, at $126.5 billion, and the lowest in 2014, with $90.5 billion.

Chart 12


New-money issuance rose to 67% of all issuance through the second quarter, compared with 57% for all of last year. Refunding has fallen to 22% of issuance, from 31% last year, while mixed-used issuance was 10%, down from 12% last year (see chart 13).

Chart 13


There were several large issues in June. The NYS Dorm Authority led with a $1.86 billion issuance, followed by Georgia with a $1.1 billion general obligation issue (see table 4).

Table 4

Largest U.S. Municipal Issues: June 2021
Issuer (Mil. $) Date
NYS Dorm Authority 1,857.8 6/16/2021

Georgia (State)

1,096.6 6/8/2021
Metro Washington Airports Authority 899.6 6/2/2021

Port of Seattle - Washington

794.6 6/17/2021

Massachusetts (State)

689.4 6/10/2021
Southeast Energy Authority 660.2 6/15/2021

Indiana Finance Authority

641.2 6/8/2021

Michigan Strategic Fund

603.2 6/23/2021

NYC Housing Development Corp.

600.2 6/16/2021
Colorado Health Facilities Authority 491.8 6/15/2021
Sources: Refinitiv and S&P Global Ratings Research.

For the year to date, California has issued the most debt so far, with $20 billion, up 75% from this time last year. New York is second with $13.8 billion, up only 28% from last year (see table 5).

Table 5

Top 10 States By Bond Sales: June 2021
--2021-- --2020--
State Rank Volume YTD (mil. $) Rank Volume (mil. $) Change from previous year (%)
California 1 36,229.6 1 28,558.0 26.9
New York 2 24,289.1 2 27,000.0 (10.0)
Texas 3 23,095.5 3 21,984.5 5.1
Florida 4 9,278.1 6 9,584.1 (3.2)
Pennsylvania 5 7,763.2 7 7,249.2 7.1
Massachusetts 6 6,692.7 5 9,630.3 (30.5)
Colorado 7 6,414.8 11 4,806.2 33.5
Ohio 8 6,151.1 17 3,275.1 87.8
New Jersey 9 5,981.2 9 5,596.8 6.9
Georgia 10 5,972.0 13 4,252.1 40.4
Sources: Refinitiv and S&P Global Ratings Research.
U.S. structured finance issuance hit a high in the first half

The second quarter of 2021 saw U.S. structured finance issuance take off after an already robust first quarter, with originations advancing 68% year over year at the end of June. In the second quarter alone, securitizations totaled $195 billion, the highest for any quarter in a decade; in fact, each sector except CMBS reached a decade high in the second quarter (see chart 14).

New-issue CLO originations increased 145% to $91 billion year over year through June. The second quarter added $55 billion to the sector total, on top of the $36 billion in the first quarter. Demand for CLOs remains robust in the face of rising U.S. Treasury yields, leaving managers with more appetite for floating-rate securities. Middle-market CLOs saw increased demand for both new-issue CLOs as well as refinancing and resets in the first half of 2021. Credit metrics have been accommodating, with 'CCC' rated loans becoming less prevalent in portfolios, while 'B-' credits have steadily grown.

Spreads have significantly tightened since June 2020, falling to their lowest point in February 2021 and making the sector even more inviting. However, credit spreads have since been on the rise, albeit at a sluggish pace, which could curb CLO volumes by year-end. Separately, while we do not include the origination levels for CLO refinancings and resets in our global and regional totals (see charts 1, 16, and 23 and table 1), we do keep close track of this segment. In June, CLO refinancings and resets rose to $81 billion year to date--the highest total for any first half of a year historically. Spread tightening has played its own role in the historic CLO refinancing and reset volume as managers refinance and reset existing bonds at lower cost.

U.S. ABS issuance rose 51% year over year to $125 billion in the first quarter, and the second quarter followed with a 10-year quarterly high of $69 billion. Auto ABS still holds the highest concentration in ABS with $30 billion in the second quarter, also a 10-year high. The student loan ABS sector has been particularly active, with $14 billion in issuance in the first half of 2021. At the beginning of the year, private collateral, rather than FFELP loans, dominated student loan ABS. In the second quarter, the number of FFELP originations increased to keep pace with private. The second-quarter total for student loan ABS was $9 billion, second only to the second quarter of 2012.

Credit card ABS is experiencing some reprieve in terms of new issuance, following a muted 2020. The second quarter recorded $1.2 billion in originations, bringing the total for the first half of 2021 to $2.1 billion. Pent-up savings from consumers throughout the pandemic came in tandem with a drop in discretionary spending. The U.S. is now well on its way to recovery, supported by widespread vaccinations, giving people the comfort to put 2020 savings to work.

Chart 14


U.S. RMBS originations almost doubled in the second quarter to $48 billion, leading the midyear 2021 total to $73 billion, up 73% annually. The second quarter had the largest quarterly origination volume within RMBS in the past decade. Each month in the second quarter saw double-digit growth in origination volume. The prime jumbo space has been growing at the fastest pace, accounting for almost half of the second-quarter total at $28 billion. The RMBS "other" sector added $19 billion in the quarter, consisting mostly of nonperforming loans, seasoned loans, and credit risk transfers. We expect demand for new and existing home sales to remain elevated throughout 2021, maintaining the pace of new originations.

The U.S. CMBS sector enjoyed higher originations in the second quarter of 2021, turning the year-to-date total in a positive direction. CMBS totaled $30 billion in the first half of the year, representing a 12.3% increase, following three years of consecutive declines at the midyear mark. The sector has reported consecutively increasing volumes each month in 2021, with $19 billion in originations in the entire second quarter of 2021, compared with $11 billion in the first quarter. Commercial spaces are no longer a high risk to the vaccinated population and have finally opened in a limited capacity. We expect the rise in CMBS issuance to continue in line with the reopening of the U.S. economy.

European Financing Conditions Also Remain Highly Favorable

Financing conditions in Europe remained largely favorable through June (see table 6). Speculative-grade corporate bond spreads have remained close to 300 bps since mid-March, and the first-quarter ECB survey of lending conditions contracted noticeably, implying much looser lending conditions for corporations relative to the fourth quarter of 2020. Overall, we expect the European economy to rebound in 2021, but at a slower pace than the U.S. economy. The continuation of favorable financing conditions remains a key component of this recovery.

For now, the ECB will continue to support the nascent economic recovery by ensuring loose financing conditions. After the June meeting, ECB President Christine Lagarde emphasized that it was too early for financing conditions to tighten in the eurozone, especially amid tightening pressures from the U.S. and temporary inflationary pressures. That said, the summer's grand reopening could pave the way for the ECB to start reducing the pace of its net purchases under the pandemic emergency purchase program in September. At the very least, the ECB will probably start talking about reducing the pace of quantitative easing, especially if the rollout of vaccines signals an end to the pandemic.

Nonetheless, we still expect the ECB to continue net asset purchases through 2023 and to refrain from hiking rates before late 2024. That's when the output gap should close and inflationary pressures head closer to 2%.

As in the U.S., inflation in Europe has increased recently, but the expansion has been far more muted. For the most part, we expect inflation to remain modest in Europe. The ECB Survey of Professional Forecasters shows five-year inflation expectations at only 1.7%--effectively unchanged since early 2019. And thus far, it appears European sovereign yields and corporate spreads have largely brushed off changes in U.S. Treasury yields. The ECB's loose monetary policy continues to support favorable lending conditions.

For both the U.S. and Europe, speculative-grade borrowers issued historically high amounts of debt through the first half, on the back of low borrowing costs and easy financial terms. In June, all of the institutional leveraged loans that came to market were classified as covenant-lite, while the yield on new bond issues rated 'B' averaged less than 4%, and the European leveraged loan distress ratio fell below 1%.

Table 6

Indicators Of Financing Conditions: Europe
Restrictive Neutral Supportive 2021 2020 2019
M1 money supply (year-over-year % change)* x 10.5 12.6 7.2
M2 money supply (year-over-year % change)* x 7.5 9.2 5.3
Three-month euro-dollar deposit rates (%) 2.55
ECB Lending Survey of large companies§ x 5.19 2.77 -4.61
Yield to maturity of new corporate issues rated 'A' (%) x 0.75 1.26 1.30
Yield to maturity of new corporate issues rated 'B' (%) x 3.93 5.76 8.88
European high-yield option-adjusted spread (%)† x 2.96 5.21 3.71
Underpriced speculative-grade corporate bond tranches, 12-month average (%) x 24.2 22.9 27.2
Major government interest rates on 10-year debt x
S&P LCD European Leveraged Loan Index distress ratio (%) x 0.89 7.62 2.03
Rolling-three-month average of all new-issue spreads: RC/TLA (Euribor +, bps) 287.5
Rolling-three-month average of all new-issue spreads: TLB/TLC (Euribor +, bps) x 375.6 461.8 391.8
Cov-lite institutional volume: share of institutional debt, rolling-three-month average (%) x 94.7 85.7 92.0
*Through May 31, 2021. §European Central Bank Euro Area Bank Lending Survey for large firms; first-quarter 2021. †ICE BofA Euro High Yield Index Option-Adjusted Spread, retrieved from FRED, Federal Reserve Bank of St. Louis. Data through June 30, 2021. Sources: Economics & Country Risk from IHS Markit; ECB; LCD, an offering of S&P Global Market Intelligence; and S&P Global Ratings Research.
Strong European corporate issuance led by issues rated 'BBB+' or lower

Rated European corporate issuance remained strong in second-quarter 2021, totaling €211.7 billion. Issuance slowed considerably in April before picking back up in May and June. The 'BBB' and speculative-grade rating categories led (see chart 15).

Chart 15


Strong demand for credit helped push speculative-grade issuance to €59.3 billion, the most quarterly issuance since second-quarter 2014. Total speculative-grade issuance year to date reached €116.4 billion, which is the strongest six-month total on record. Issuance was strong in every speculative-grade category, with the €34 billion of 'BB' issuance nearly matching the quarterly record.

Investment-grade issuance totaled €152.4 billion, 26% lower than in the first quarter and below average for quarterly issuance. Issuance was strong in just the 'BBB' category, with €81.5 billion, which accounted for the bulk of all rated European corporate issuance in the second quarter (38%).

Financial issuers accounted for most rated issuance during the second quarter with €128.2 billion, 27% lower than issuance in the first quarter. Rated nonfinancial issuance totaled €83.5 billion, slightly lower than in the first quarter. Issuance in the homebuilders and real estate, oil and gas, utility, high technology, and transportation sectors accounted for about three-fifths of all rated nonfinancial issuance, with €13.8 billion, €10.8 billion, €10.1 billion, €8.5 billion, and €6.2 billion, respectively.

BNP Paribas S.A. topped the list of issuers again in the second quarter, with €7.4 billion (see table 7). There were 33 note offerings from BNP Paribas S.A. in the second quarter.

Table 7

Largest European Corporate Bond Issuers: Second-Quarter 2021
Issuer Country Sector Mil. €

BNP Paribas S.A.

France Banks and brokers 7,439.4


Luxembourg Financial institutions 6,627.9
Raiffeisen Centrobank AG Austria Banks and brokers 5,598.0

Banco Santander S.A.

Spain Banks and brokers 4,992.8

HSBC Holdings PLC

U.K. Banks and brokers 4,629.1

Credit Agricole Corporate and Investment Bank

France Banks and brokers 4,276.8

Vonovia Finance B.V.

Netherlands Homebuilders/real estate companies 3,980.8

NatWest Markets PLC

U.K. Banks and brokers 3,862.8

Barclays PLC

U.K. Banks and brokers 3,506.1

Unicredit SpA

Italy Banks and brokers 3,384.3
CCEP Finance (Ireland) DAC Ireland Financial institutions 3,247.2

ENEL Finance International N.V.

Netherlands Banks and brokers 3,213.4

Nestle Finance International Ltd.

Luxembourg Banks and brokers 3,140.9

Societe Generale S.A.

France Banks and brokers 3,075.7

Eni SpA

Italy Oil and gas 2,995.5
Source: Refinitiv and S&P Global Ratings Research.
European leveraged loans also hit a record in the first half

The European leveraged loan new-issue market ended the second quarter of 2021 with a bang, boosting the first-half volume to record levels (see chart 16). Total leveraged loan volume came in at €80.9 billion for the year through June 30, according to LCD--already higher than full-year 2020 issuance of €64.9 billion and the highest first-half issuance since 2007.

Chart 16


An incredibly active private equity market is driving this buoyant new issuance, with the volume of loans supporting buyouts at its highest since 2007. New buyouts are also spurring much of the bond market activity, with 40.1% of new bond issuance sponsor-driven in the first half of 2021, compared with 27.8% across the whole of 2020.

Chart 17


Meanwhile, new issuance tipped the loan supply-demand balance into a surplus for the second quarter, though this measure doesn't take into account non-CLO demand, which is helping to keep the bid for leveraged loans strong in Europe (see chart 18). The market has absorbed the new supply with relative ease, too, despite a clear widening in loan margins through the second quarter, as well as a little softness creeping into a previously firm secondary market by late June as accounts churned portfolios to make room for primary supply.

Institutional loan issuance totaled €33.7 billion in the second quarter of 2021, which was behind the first quarter's robust €36.2 billion but after that is still the busiest quarter since the second quarter of 2007. This so-called new money influx has resulted in the biggest supply surplus in Europe on a rolling-three-month basis since April 2020. Investments in loans--as measured by European CLO issuance--have outstripped available supply for the past nine out of 12 months, but with the surge of issuance in 2021, this dynamic could be shifting.

Chart 18


LCD calculates net loan supply by tracking new issues into the European Leveraged Loan Index minus repayments, which worked out to €11.1 billion for the second quarter. This compares with new CLO issuance of €6.9 billion for the quarter, leaving a supply surplus of €4.2 billion for the three months ended June 30. However, this calculation doesn't take into account non-CLO funds in Europe, which add to demand for the asset class, and investors have told LCD that they have seen more inflows into these funds in recent months.

In the first quarter of 2021, the supply shortage on LCD's measure was €3.29 billion, which resulted in a compression of both loan spreads and yields for that period. Through the second quarter, overall pricing came off lows to settle at E+375 for a 'B' rated borrower, up from about E+350 in March, with the best 'B-/B3' names also moving up by about 25 bps to E+400 (see chart 19). In terms of averages, LCD data shows margins for 'B' euro-denominated term loan Bs moved to E+388.2 by the end of May from E+379.7 for the three months ended March, with yields moving to 4.06% from 3.92%.

Chart 19


Spreads compressed in June, moving to E+397.8 at the end of the quarter from E+398.4 in May on a rolling-three-month basis for all 'B' term loans. Yields backed up slightly to 4.20% from 4.17%, however, as original issue discounts (OIDs) got larger on average. Meanwhile, average primary new-issue pricing decreased (because of widening OIDs) to 99.4 at the end of the second quarter from 99.7 at the end of the first quarter.

Price tightenings (or reverse flexes) on European loans still outweighed upward yield moves, with just two deals pricing wide of talk in the three months to June 2021 and 31 deals reverse-flexed (see chart 20). Reverse flexes have been more palatable to investors recently as they have focused on tightening OIDs closer to par than on margin cuts, with the former affecting the yield less over the long term. This, however, makes churn tougher in secondary markets, given a general lack of appetite to pick up tight-margin deals through par.

Chart 20


Whether loan spreads will keep tightening toward the late summer will almost certainly hinge on the direction of CLO liabilities. Managers note that loans have generally been a CLO-dominated affair in Europe this year, though there are signs of more inflows from multistrategy accounts as inflation talk in the U.S. increases the attractiveness of the floating-rate asset class globally.

European structured finance volume was down 21% in the first half

European structured finance issuance in the first half of the year was down 21% (see chart 21). Covered bond volume has continued its steady decline as originators in the region leverage cheaper funding due to central bank intervention, making the asset class less attractive. The securitization market, which took off at a fiery pace at the start of 2020 as the market adapted the Simple, Transparent, and Standardized framework outlined by governments, appears to have lost its luster in 2021.

For securitizations, the $56 billion in new originations in the first half of the year was 21% below the comparable 2020 period. With a region as large and complex as Europe, divergence in originations occurs across both countries and asset classes. RMBS has been suffering with no originations from France and Italy so far in 2021. However, over in the U.K. and Spain, originations have grown 12% and 109%, respectively. ABS has enjoyed gains in both the U.K. and other regions outside of the Netherlands, Spain, France, and Italy. European structured credit has proved a bright spot across the pond, as in the U.S. New CLO originations increased 40% in the first half of the year, carried mainly by traditional CLOs.

As in the U.S., while we don't count CLO refinancing and resets in our forecasts or historical trends for Europe, we keep track of the segment. CLO refinancing and reset volume in Europe grew to $39 billion through June, the highest total on record for any first half of the year. CMBS added originations in the second quarter, bringing the midyear total to $2 billion, a 59% year-over-year increase.

Covered bond originations have diverged as well as European central banks have injected liquidity into regional economies. The appeal of covered bonds has diminished in the face of cheaper funding alternatives. Each region reported lower covered bond originations with the exception of Norway and Italy, with 49% and 57%, respectively. All other countries experienced double-digit declines in issuance.

Chart 21


Emerging Market Issuance Dominated By Unrated Debt From China

Credit spreads in most emerging market regions continued to tighten in the second quarter (though spreads in Asia widened) as dollar-denominated issuance reached a new quarterly record of $126.4 billion. Emerging Asia (excluding China) led all regions with $43.8 billion of dollar-denominated issuance (18% lower than in the first quarter) (see chart 22). In China; Eastern Europe, the Middle East, and Africa (EEMEA); and Latin America, dollar-denominated issuance totaled $36.3 billion, $33.6 billion, and $12.7 billion (8% higher, 121% higher, and 24% lower than the first quarter), respectively.

Chart 22


Rated emerging market corporate bond issuance in the second quarter totaled $75.6 billion, 16% higher than the first-quarter total (see chart 23). Investment-grade corporate issuance totaled $55.2 billion and speculative-grade issuance totaled $20.4 billion, 23% higher and unchanged from the first quarter, respectively. Issuance was strong in every rating category except for 'BBB'.

Chart 23


Most corporate bond issuance in emerging markets is unrated. In the second quarter, 85% of issuance was unrated by S&P Global Ratings, and 70% was unrated debt from China.

All emerging market corporate bond issuance in the second quarter totaled $508.3 billion, 6% higher than the first quarter and a record for second-quarter issuance (see chart 24). China led all regions with $365.4 billion (slightly higher than the first quarter). Emerging Asia (excluding China), EEMEA, and Latin America issuance totaled $82.8 billion, $41 billion, and $19 billion (unchanged, 66% higher, and slightly lower than the first quarter), respectively.

Chart 24


Qatar Petroleum Corp. topped the list of issuers that issued rated bonds in the second quarter (see table 8). The company issued a four-part senior unsecured note offering totaling $12.4 billion on June 30.

Bank of Communications Co. Ltd. topped the list of all emerging markets issuers (including unrated issuance) in the second quarter (see table 9) with a total of $12.6 billion of senior unsecured notes across two bond offerings.

Table 8

Largest Emerging Markets Corporate Bond Issuers: Second-Quarter 2021 Rated Issuance
Issuer Country Sector (Mil. $)

Qatar Petroleum Corp.

Qatar Oil and gas 12,448.5

Tencent Holdings Ltd.

China High technology 4,148.7

TSMC Global Ltd.

Taiwan Banks and brokers 3,492.6

United Overseas Bank Ltd.

Singapore Banks and brokers 3,010.5

Petronas Capital Ltd.

Malaysia Financial institutions 2,999.8


South Korea Banks and brokers 1,992.2

New Development Bank

China Banks and brokers 1,497.9


Morocco Chemicals, packaging, and environmental services 1,482.1

Fomento Economico Mexicano

Mexico Consumer products 1,434.2

Malaysia Wakala Sukuk Bhd.

Malaysia Financial institutions 1,300.0

Korea Housing Finance Corp.

South Korea Financial institutions 1,197.6

Emirates Telecommunications Group Co.

United Arab Emirates Telecommunications 1,195.1

GLP Pte. Ltd.

Singapore Transportation 1,150.0
AIIB China Banks and brokers 1,125.9

Fortune Star (BVI) Ltd.

Hong Kong Financial institutions 1,094.9
Sources: Refinitiv and S&P Global Ratings Research.

Table 9

Largest Emerging Markets Corporate Bond Issuers: All Second-Quarter 2021 Issuance
Issuer Country Sector (Mil. $)

Bank of Communications Co. Ltd.

China Banks and brokers 12,599.8

Qatar Petroleum Corp.

Qatar Oil and gas 12,448.5

Industrial & Commercial Bank of China Ltd.

China Banks and brokers 10,972.5

China CITIC Bank Corp. Ltd.

China Banks and brokers 9,269.1

The Export-Import Bank of China

China Banks and brokers 9,021.3

China Development Bank Corp.

China Banks and brokers 8,895.4

Bank of China Ltd.

China Banks and brokers 7,744.0

China Minsheng Banking Corp. Ltd.

China Banks and brokers 4,609.4

Tencent Holdings Ltd.

China High technology 4,148.7

Huatai Securities Co. Ltd.

China Banks and brokers 3,951.5

China Bohai Bank Co. Ltd.

China Banks and brokers 3,825.6

Bank of Nanjing Co. Ltd.

China Banks and brokers 3,753.8

Agricultural Development Bank Of China

China Banks and brokers 3,571.9

TSMC Global Ltd.

Taiwan Banks and brokers 3,492.6

Guotai Junan Securities Co. Ltd.

China Banks and brokers 3,395.3
Sources: Refinitiv and S&P Global Ratings Research.

International Public Finance Makes Up Ground

Bond issuance from the international public finance sector in the first half of 2021 totaled $585 billion, down 2.6% from the first half of 2020. However, this is a smaller contraction than the first quarter's 15.6% decline. Chinese issuers tend to dominate the global total, but through the first quarter, Chinese public finance issuance was down over 27%, though some of this decline resulted from a lack of an advance of issuers' borrowing quotas, which was seen in late 2019 and helped boost early 2020 issuance totals. The second quarter offered a contrast for Chinese issuers, producing a high of nearly $285 billion.

Data on non-U.S. public finance volume is not reliable for determining the true size of borrowing, but the numbers can suggest major trends. The four years prior to 2020 recorded the highest volume ever in international public finance, averaging over $631 billion annually, and 2020 exceeded the $1 trillion mark for the first time. As with other sectors, 2020 presents a difficult total to match.

Structured Finance Issuance Outside The U.S. And Europe Was Down In The First Half

Outside of the U.S. and Europe, covered bond issuance has also dragged down midyear origination volume, which stands at $81 billion. Securitizations rose 9% year over year to $67 billion, the majority of which came from Japan and Australia. Each region outside of the U.S. and Europe recorded double-digit year-over-year increases. Meanwhile, covered bond originations remained low, falling 15% to just $15 billion. Leading the decline, Australia's covered bond issuance fell 76% with just two originations, followed by Canada, which recorded a 52% decline with 10 originations.

Related Research

This report does not constitute a rating action.

Ratings Performance Analytics:Nick W Kraemer, FRM, New York + 1 (212) 438 1698;
Zev R Gurwitz, New York + 1 (212) 438 7128;
Kirsten R Mccabe, New York + 1 (212) 438 3196;
Jon Palmer, CFA, New York;
LCD:Taron Wade, London + 44 20 7176 3661;

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