Leveraged finance (LevFin) issuance across the US and European institutional loan and high-yield (HY) bond markets totalled USD 287bn in the first half of 2023, falling just 8% shy of the volume raised in 1H22. Nevertheless, the figure doubled from just USD 143bn raised during 2H22, bolstered by a strong rebound in HY activity on both sides of the Atlantic. Quarter-on-quarter (QoQ), LevFin issuance rose 11% to USD 151bn in 2Q23.

Markets cracked on as wobbles in the US regional banking system appeared to be contained and losses from the forced rescue of Credit Suisse by UBS were mainly limited to AT1 bonds, while the macroeconomic backdrop turned out to be more constructive despite pressures from persistently high inflation and the consequent central bank rate hiking cycle.

Long-running fears of hawkish rate hikes triggering a recession have yet to materialise, with consumer spending and labour markets showing more resilience than previously projected. Notwithstanding some softening, issuers generally posted better-than-expected first quarter earnings results. But while fundamentals looked healthier than anticipated, default rates inched up and are expected to rise rapidly as rising interest rates erode cashflows and render capital structures of weaker credits unsustainable.