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U.S. IG: New Issue for '23 and a First Look at '24
Winnie Cisar – Global Head of Strategy
Zachary Griffiths, CFA – Senior Analyst - U.S. Strategy
Kathleen Tang – Analyst - Strategy
Brian Perez – Analyst - Strategy
EXECUTIVE SUMMARY
- As the market looks ahead to 2H23 and into 2024, we provide an update on US Investment Grade new issue expectations and a preliminary look at potential 2024 supply. We continue to expect $1.0-$1.1 trillion of IG new issue in 2023, which implies another $300-$400 billion of supply in the remaining four months of the year and monthly run rate of $70-$80 billion (assuming limited new issue in December).
- Our preliminary estimate for 2024 issuance is $1.15-$1.25 trillion as we expect a pick-up in refinancing issuance related to higher near-term maturities, a modest acceleration in Financials issuance relative to 2023 levels and some incremental M&A activity. We expect that M&A could begin to pick up in 2024 as some economic challenges start to abate, borrowing costs stabilize and management teams look ahead to a potential shift in the regulatory environment if it appears that Republicans have early momentum in the 2024 Presidential election.
- We provide a bottoms up, sector-by-sector forecast of visible new issue supply for the remainder of 2023 and preliminary estimates for 2024 at the sector level.
- We also update our analysis of near-term maturities by rating, sector and issuer, highlighting the largest differences in existing coupons and current borrowing costs as implied by market valuations.
With almost half of 2023 now behind us, we provide an update on US Investment Grade new issue expectations for 2H23 and a preliminary look at potential 2024 supply.
2H23 and Preliminary 2024 New Issue Expectations
So far issuance in 2023 has surprised modestly to the downside as elevated UST yields and Financials-driven volatility continue to push borrowing costs higher for the US IG market. Heading into the year, we forecast new issue supply of $1-$1.1 trillion (US IG: New Issue for ’22 and a First Look at ’23) as we expected to see an overhang on discretionary supply from M&A and debt-financed share buybacks/dividends while refinancing needs were modest as many companies continued to benefit from liability management transactions done in 2H20 and 2021 (for a closer look at YTD IG new issue activity, please see US IG New Issue Recap: May 2023).
We are reaffirming our 2023 issuance forecast of $1-$1.1 trillion, and, given the YTD volume of $738 billion (which includes both index eligible and non-index eligible bonds), we believe that the high end of that range is most likely. As the Fed remains on hold (or hikes again), we do not expect borrowing costs to drive a wave of opportunistic refinancing in the second half of the year. We expect that a good share of 2H23 and 2024 maturities were pre-funded earlier in the year as credit spreads and new issue concessions tightened. Assuming that December is a quiet month for new issue, our estimate points to a monthly run rate of $70-$80 billion of IG primary market activity in July through November.
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