A service of

DCM Highlights: FY22

Issuers retreated from global bond markets in their droves during 2022, with borrowers opting to reduce fundraising as rising interest rates brought the era of cheap debt financing to an end. Wider market volatility, triggered by high inflation and the prospect of a global recession taking hold in 2023, also weighed on funding decisions, making primary markets harder to navigate. Overall, debt capital market (DCM) supply reached USD 1.1trn in 4Q22 and USD 6.3trn in the year to date (YTD). This represents a decline of 40% quarter-on-quarter (QoQ) and 30% year-on-year (YoY).

The Americas has seen YoY activity sink the furthest. Data shows a 34% YTD slump in supply to USD 2.5trn. Europe, the Middle East and Africa (EMEA) experienced a 25% YTD decline in DCM activity to USD 2trn. In Asia-Pacific (APAC), new issuance reached USD 1.8trn in 2022, marking a fall of 25% YTD.

High yield, low supply

The lack of supply has been most evident in sub-investment-grade markets, with soaring funding costs and limited refinancing needs subduing dealmaking. Global high-yield (HY) issuance plummeted to its lowest annual level in the past decade. The USD 227bn issued YTD is less than half the annual average of USD 577bn over the past 10 years. In 2021, HY supply surpassed USD 909bn.

The decline in new deals from investment-grade (IG) issuers has also been significant, albeit less stark. YTD volumes stand in excess of USD 6.1trn compared with more than USD 8trn priced during 2021.

The financial institutions group (FIG) has led DCM activity this year, producing over USD 2.1trn of new deals and accounting for around one-third of all trades. This marks a shift from 2021, when it was corporate borrowers that headed the market, providing over one-third of new issuance and raising USD 2.89trn.

Among the top 10 most active sectors in the bond market this year, excluding government issuance, oil and gas (O&G) industry issuers cut back primary activity the most in 2022, with elevated commodities prices reducing the need to rely on debt funding. O&G borrowers raised USD 59bn YTD via the bond market, down 65% YoY.

Real estate has also seen a substantial fall. After making use of the ultra-low financing costs available in bond markets to fund the expansion of their portfolios, real-estate firms have now pulled back from bond financing, as the cost has risen. Supply has almost halved. YTD issuance from real-estate names stands at USD 160bn compared with USD 310bn during the same period in 2021.

ESGains market share

The trends in ESG DCM activity, across green, sustainability and social bonds, are not entirely negative. During 4Q22, there were USD 128bn of ESG instruments issued, accounting for around 12% of all new bond issuance. While the absolute volume declined, given the USD 175bn issued during 4Q21, in relative terms ESG fundraising has gained a greater share of overall issuance. The ESG asset class accounted for only 9% of deals in the final quarter of last year.

ESG issuance totals USD 692bn YTD compared with USD 872bn during the same period last year, reflecting a decrease of 21% YoY, a lower figure than the drop of 30% in overall bond market supply.

Sovereigns, supranationals and agencies (SSAs) have been the most active issuers of ESG bonds in 2022, raising USD 278bn via these products, accounting for 40% of deals YTD. Corporates have sold USD 210bn of ESG bonds and FIGs have sold USD 191bn. ESG asset- and mortgage-backed transactions account for the remainder.

Refis on the rise

Corporates have the highest refinancing needs among the different issuer classes next year. There are more than USD 5.3trn of bonds coming due in 2023, of which USD 1.9trn are issued by corporate borrowers. FIGs and SSAs each have around USD 1.4trn maturing and there are USD 550bn of asset-/mortgage-backed securities coming due.