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Bond Highlights 1H23: A tentative recovery

Primary markets begin to rise

Bond issuance began to turn a corner in a handful of regions and sectors during the second quarter as the strain on primary markets from economic and inflationary fears appeared to ease. The recovery followed the collapse in supply over recent quarters, triggered by higher interest rates, the withdrawal of central bank support and wider market volatility.

The changing macroeconomic environment can still be seen in overall tempered supply volumes, however. Global bond sales totaled USD 1.62trn in 2Q23, flat on the same period last year. For the first six months of 2023, bond issuance fell 10% to USD 3.54trn compared with the same period last year.

EMEA leads growth

Europe, Middle East and Africa (EMEA) was the only region to see year-on-year growth in new issue supply. The region issued bonds worth USD 1.41trn during the first half of 2023, an increase of 14% on the same period last year. EMEA issuance volumes had already started to outperform other regions during the first quarter.

In all other regions, supply has fallen. In the Americas, 1H23 bond issuance dropped 17% to USD 1.33trn from USD 1.61trn in 1H22. Asia-Pacific (APAC) experienced the steepest decline, with bond sales falling 24% to USD 802bn in 1H23 from USD 1.06trn a year earlier.

Corporates catch-up

Corporate borrowers began to find their feet during the quarter. Corporate bonds worth USD 535bn were printed in 2Q23, up 12% on the USD 477bn issued during 2Q22. Despite the second quarter increase, corporate issuance of USD 1.14trn in 1H23 remained broadly flat year on year.

Sovereign, supranational and agency (SSA) issuers have also been making greater use of the bond market. SSA issuance grew 18% to USD 423bn in 2Q23 from USD 358bn in 2Q22.  

Bond market activity from banks, insurers and other financial groups remained suppressed compared to last year. Financial institution group (FIG) bond sales totaled USD 501bn in 2Q23, 3% lower than the USD 514bn issued during the same quarter last year. Asset-backed securities (ABS) suffered a steeper decline with issuance dropping 40% to USD 160bn in 2Q23 from USD 269bn in 2Q22.

Sector dispersion

A handful of sectors helped drive growth in corporate supply. Healthcare companies raised USD 116bn during 1H23, having only issued USD 74bn in the same period last year. The automotive sector issued USD 137bn in 1H23, up 25% on 1H22, and oil and gas borrowers upped output by 50% to USD 63.5bn over the same period. Although the absolute numbers are relatively small, sales from textile industry credits saw the highest level of growth in the first half. The industry’s corporates printed USD 2.24bn in 1H23, more than eight times the figure recorded in 1H22.

Sectors in which financing costs have risen the sharpest have shied away from the bond market. Real estate and construction names drastically cut bond issuance over the first six months of the year. Those sectors are some of the most exposed to economic downturns, weaker property valuations and higher interest rates. The real estate sector raised USD 74.8bn via the bond market in 1H23, down 40% from USD 125bn during the same period last year. Construction companies issued USD 69.5bn in the first half, a 33% decline from USD 104bn in 1H22. Other sectors are also down, although to a lesser extent. Supply from telecommunications companies shrank 23% to USD 61.8bn and transportation supply dropped 14% to USD 77.5bn.

SSAs propel ESG recovery

Environmental, social and governance (ESG)-themed bond issuance climbed during 2Q23, led by an increase in activity from SSA borrowers. ESG supply totaled USD 218bn during the quarter, exceeding the USD 186bn sold last year. SSAs supplied USD 99bn of that, up from USD 63.8bn in 2Q22.

Green bonds remain at the core of the market, accounting for 69% of all ESG supply during the quarter. Green issuance hit USD 151bn during 2Q23, up 18% on the USD 128bn issued in 2Q22. Sustainability bonds also saw greater volume, increasing 13% year-on-year to USD 36.5bn in 2Q23. The primary market for social bonds also grew. Issuers notched up USD 30.2bn in sales, compared to USD 26.5bn in 2Q22.

High-yield revival

One of the most notable comebacks this year has been the resurrection of the high-yield market following its collapse in 2022. A total of USD 187bn in high-yield bonds were issued globally during 1H23, surpassing the USD 156bn issued over the same period last year and closing in on the USD 234bn sold over the entirety of 2022.

Nonetheless, supply still has a long way to go before it compares with previous years. In 2021, a record year for the asset class, issuance hit USD 561bn over the first six months. In 1H20, when Covid-19 first roiled markets, sales of new high-yield debt were USD 396bn. Primary high-yield markets were effectively shut for much of last year because of the volatility following Russia’s invasion of Ukraine and the increasingly downcast economic outlook.

Maturity wall

Refinancing and the ability of borrowers to handle higher interest rates will be key themes for bond markets over the coming quarters. In 2H23, more than USD 2.4trn in debt will come due. During 2024, issuers will have to tackle USD 5.7trn of maturing debt and the following year this figure rises to almost USD 5.9trn.

Corporate issuers make up the largest volume of near-term maturities, with USD 834bn due to mature in the second half of 2023. SSAs will have to address USD 698bn of redemptions and FIG borrowers another USD 640bn. Another USD 271bn of ABS comes due in 2H23.