Ill winds: Global bond sales slump 43% YoY as inflation, soaring interest rates cool financial markets

Rising interest rates and rampant inflation have buffeted global bond sales thus far in 2Q22, with volumes plunging 42.8% year-on-year (YoY) and 35.9% quarter-on-quarter (QoQ), as financial conditions tighten amid weakening global macroeconomic growth, Russia’s war in Ukraine, and supply-chain disruption.

Issuance volume in 2Q22-to-date totaled USD 1.34trn-equivalent across 3,865 deals, down from USD 2.34trn via 5,712 transactions over the same period last year and USD 2.09trn from 5,102 deals priced in 1Q22-to-date. On a year-to-date (YTD) basis, issuance volume in 2022 fell to its lowest level since 2015, with USD 3.56trn generated from 9,294 deals, down 27.7% from USD 4.92trn via 12,045 deals this time last year.

All three major markets are trending down to well below pre-pandemic levels, with the Americas declining 43.6% YoY to USD 566.5bn; Europe, the Middle East and Africa (EMEA) collectively falling 41.6% to USD 425.9bn; and Asia-Pacific (APAC) reversing 42.8% to USD 347.5bn during 2Q22-to-date.

The narrative is the same by issuer type, with the financial institutions group (FIG) sliding 30.6 YoY to USD 415.9bn; corporates dropping 47.7% to USD 399.9bn; sovereign, supranational and agency (SSA) combined tumbling 41.8% to USD 313.1bn; and asset-/mortgage-backed securities (ABS/MBS) collapsing 51.9% to USD 211.1bn.

Cold front: corporates have been caught up in downturn

The drop in overall corporate bond volumes has been primarily hindered by high-yield (HY)-rated issuance, printing USD 39.5bn in 2Q22-to-date, down 80.6% YoY from USD 204bn and marking the lowest quarterly-to-date amount since 3Q11.

Bond offerings from Americas and EMEA HY credits have endured hefty YoY declines of 82.2% to USD 23.57bn and 84.4% to USD 8.4bn, respectively, in 2Q22-to-date. The fall in volumes from APAC HY paper is less glaring, down 58.2% YoY to USD 7.55bn, despite ongoing trouble in the Chinese property sector.

There were no USD-denominated bonds from Chinese real-estate developers during 2Q22-to-date, although three top-tier names tapped the onshore bond market, restoring some sentiment for the sector. Midea Real Estate Group Ltd raised CNY 1bn 4.5% due-2026 notes, while Country Garden Real Estate Holdings Co Ltd issued CNY 500m 4.5% three-year bonds and Longfor Group Holdings Ltd priced CNY 500m six-year notes at 4%.

In the investment-grade (IG) space, issuance volume is down 35.2% YoY to USD 355.7bn from USD 548.7bn registered this time last year.

The two biggest IG corporate deals priced in 2Q22-to-date are from US-based e-commerce giant Amazon.com’s USD 12.75bn multi-tranche bond offering and US healthcare provider UnitedHealth Group Inc’s USD 6bn multi-tranche bond. Both companies also issued the two largest IG corporate bonds during the same period last year, but at greater sizes of USD 18.5bn and USD 7bn, respectively.

Big chill: almost every sector is affected

Across the top 10 largest sectors by issuance volume (excluding financials and government) in 2022-to-date, nine of them are well below their 2021 levels.

Energy and utility – the biggest contributor by volume during the period – is the only sector to hold up relatively well, posting a modest gain of 2.5% YoY to USD 94.4bn.

Volumes from oil and gas, transportation and real estate are among the hardest hit sectors so far in 2Q22, contracting 71.1% YoY to USD 14.54bn, 65.2% to USD 24.69bn and 62.1% to USD 39.65bn, respectively.

Off color: ESG issuance has lost ground

Following record high issuance in environmental, social and government (ESG)-labelled bonds last year, these transactions have eased in 2Q22-to-date, with USD 171.7bn raised across 354 deals globally, down 30.6% YoY from USD 247.3bn via 495 deals printed in 2Q21 and 17.7% from USD 208.6bn across 420 deals recorded in 1Q22.

The tally of green bonds printed so far in 2Q22 is USD 111bn, ahead of the USD 60.66bn that was labelled as social/sustainable/sustainability-linked bonds combined during the period. A reverse trend was seen in 2Q21-to-date, when USD 120.3bn of green bonds were issued versus the USD 127bn raised via other segments of ESG bonds.

The energy and utility sector issuing ESG-conscious bonds in 2Q22-to-date also outperformed last year’s levels, registering a 19.8% YoY increase to USD 30.96bn. Moreover, the sector is the largest provider, accounting for 45.7% of total ESG-labelled bond volumes during the period after excluding financials and government issuances.