Next year will witness a normalisation in SSA debt activity, with some issuers returning to pre-Covid funding levels and others having to meet larger needs, according to an SSA supply outlook report released by Barclays on Monday.
Analysts at the bank forecast €663bn-equivalent of benchmark gross supply for 2023, versus €587bn-equivalent in 2022, a year marred by market volatility and tricky issuance windows.
“We estimate euro benchmark SSA issuance at c.€410bn and US dollar benchmark at c.US$200bn, resulting in net supply of €200bn and US$17bn,” the report said.
Supply will remain driven by supranationals, with volumes from that sector boosted by increasing European Union issuance. “In 2023, we expect supranational supply to total c.€332bn equivalent, up 10% versus 2022,” the report said, adding that EU bond supply could be in a €150bn–€180bn range, depending on the pace of new loan requests and disbursements. “This would represent quite an increase from the €71bn in 2021 and €100bn in 2022. The EU is expected to communicate its H1 2023 funding plan mid-December.”
As for agencies, Barclays anticipates the pace of issuance will be in keeping with 2022 levels, with 2023 agency gross supply projected to stand at c.€270bn (for benchmark transactions).
“The majority of this is expected to come from German agencies, which we expect to issue €140bn, and French agencies, which we expect to issue €70bn next year,” the bank said.
Barclays also reckon there could be a higher share of US dollar SSA supply in 2023 relative to euros – a shift from 2022, during which euro and dollar-denominated debt accounted for 63% and 28% of supply, respectively.
“For 2023, we expect euro benchmark SSA supply to amount to c.€400bn and US dollar benchmarks to come to c.€200bn. Compared to year-to-date supply levels, this means US dollar supply could increase c.US$30bn–$50bn year-on-year and euro supply could go up by c.€50bn,” the bank said.
The report also looks into redemptions, which are expected to go up by about €28bn – 6.9% versus 2022 – to reach €431bn-equivalent.
“The increase mainly stems from higher euro redemptions (plus €46bn year-on-year) totalling €211bn, while US dollar redemptions are c.€16bn lower at €183bn. Sterling redemptions are very much the same at c.€30bn,” the report specifies, adding that next year’s increase in redemptions will stem mainly from supranationals, accounting for €26bn.