US Dollar Credit Supply: July supply stays strong despite summer period
At a Glance
The desk observes that US Dollar corporate credit supply remained unexpectedly robust in July, a trend typically muted during the summer months, signifying sustained demand for USD-denominated assets. Per the full note source, July saw corporate supply decline to $82.6 billion from $110.7 billion in June but still outperformed the same month in previous years, with year-to-date supply nearly 56% higher than 2022. This scenario is supported by tight spreads and healthy fund inflows, particularly in the Technology, Media, and Telecommunications (TMT) sector. The prevailing strong USD environment, along with stable bank issuance, indicates potential resilience in corporate credit markets amidst broader volatility expectations.
Key Takeaways
- 01US Dollar corporate credit supply remained strong in July, counter to typical seasonal trends.
- 02YTD corporate supply is significantly higher compared to previous years, reflecting persistent demand.
- 03TMT sector issuance dominated in July, signaling robust investment activity in technology.
- 04Investor appetite appears selective, with certain sectors underperforming amidst overall strength.
Full Analysis
What the desk is arguing
The desk posits that the surprising strength in US Dollar credit supply amid the summer lull reflects strong demand dynamics in the corporate bond space. This observation is underscored by a net supply of $52.6 billion in July, contributing to a year-to-date total of $425.9 billion, highlighting an effective absorption of new issuance by the market.
The TMT sector led issuance patterns with $27.7 billion in July and a remarkable $294.6 billion year-to-date, up 206% year-on-year, driven by significant funding needs for technology expenditures. In contrast, sectors such as Consumer and Autos lagged significantly, suggesting a selective investor appetite aligned with sector health and growth trajectories.
Where it sits in our coverage
Our internal consensus target for the USD reflects expectations of 1.075 with a range of 1.04 to 1.12, endorsing a cautious yet slightly bullish outlook on the dollar. Notable consensus targets from leading firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This outlook broadly aligns with the consensus views, positioning the desk's call towards the upper end of the expected range, with expected support from ongoing credit demand.
How other firms see it
Several firms, including jpmorgan, are aligned with our bullish stance on the USD, while bofa offers a more cautious view, suggesting potential weakening pressures. These divergent strategies indicate a mixed outlook on dollar strength amidst issuance trends.
Key related factors to monitor include USD/JPY dynamics, as movements in the USD can impact broader FX sentiment and potentially correlate with shifts in central bank policy directions.
Market Implications
Watch for shifts in USD corporate credit spreads as they can signal investor confidence in the dollar's strength. The upcoming data releases related to employment and inflation should also provide context for any adjustments in interest rates that could affect the credit supply dynamics.
From the original
Reports Report US Dollar Credit Supply: July supply stays strong despite summer period Published 07:50 Credit Corporate supply defied the summer lull in July with TMT remaining the standout performer. Bank supply was stable in July Timothy Rahill and Marine Leleux Download PDF Ex
Related speeches
4 itemsUS Dollar Credit Supply: Supply continues at a strong pace
The desk argues that the elevated levels of US dollar credit supply could suggest ongoing liquidity and a supportive environment for USD-denominated assets. Per the full note by Rahill and Leleux, corporate supply hit $110 billion in June, nearly doubling the issuance from the same month last year and bringing the year-to-date total to $685 billion. This robust issuance is significantly ahead of previous years, indicating strong demand and providing confidence for continued issuance as companies prepare for capital expenditures.
Euro Credit Supply: Supply continues at a strong pace
The desk interprets the strong demand for Euro credit supply as indicative of a resilient corporate sector, despite a slight decrease in issuance from May. Per the full note [source], June saw corporate issuance of €51bn, which, although lower than May's €68bn, is still well above historical averages and brings year-to-date totals to €289bn. This momentum suggests a robust backdrop for Euro denominated assets, particularly as ESG issuances remain a focal point and hybrid debt begins to gain traction. Current trading indicates a mix of stability and the potential for upward pressure on the Euro if these trends persist into the second half of the year.