16 January 2024Deutsche BankResearch North America United States Credit Strategy US Credit Strategy Date USD issuance was robust in 2023, especially in the second half of the year as rate volatility waned. Primary markets will likely work as normal through the majority of H1, with a potential upside surprise if data starts pointing to a greater a likelihood of a soft landing. However, given our forecast for a US recession mid-year we expect USD issuance overall will finish moderately lower this year. Capital markets typically shutter for periods when credit spreads significantly widen, and currently we forecast spreads will hit their wides in Q3. In addition, during Q2 when spreads are widening we expect issuance to slow meaningfully as rate vol rises. We expect a modest drop in $IG Financials issuance. Total gross and net $IG Financial issuance should roughly be $500bn (~$30bn lower than '23) and $125bn (~$75bn lower than '23), respectively. Meanwhile, Non-Financial supply will be down around $150bn and $95bn from the current run-rate, respectively at $575bn and $315bn (see table below). Meanwhile $HY net issuance will get a boost as the high cost of funding in the loan market pushes issuers to $HY when dealing with large 2025 and 2026 maturity walls (gross: $175bn and net: $125bn).Low net supply and strong inflows have been quite positive for $IG, while $HY spreads have also benefited multiple years of record net rising stars. Net supply trends for $IG should continue to be balanced-to-positive depending on fund flows, while $HY is likely less positive in 1H'24 than it has been. Figure 1: 2024 USD Supply forecast and historiesIssuance by segment in $bn (incl. floater w/ $IG issues �$300m and $HY issues �$150m)20202021202220232024 (e)Gross622711671529500Redemptions331347315320375Net291363356209125Gross1190714544718575Redemptions438421334308260Net752293210410315Gross18121425121512471075Redemptions769768649627635Net1043656566620440Gross513546129215175Redemptions2373251199655Net2762211285120$IG Financials$IG Non-FinancialsTotal $IG$HYSource : Deutsche Bank, Bloomberg Finance LPKarthik NagalingamUS Credit Strategist+1-212-250-0521Steve CaprioHead of European and US Credit Strategy+44-20-754-16176Deutsche Bank Securities Inc.IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. MCI (P) 041/10/2023. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.2024 USD Supply OutlookDistributed on: 16/01/2024 06:02:09 GMT7T2se3r0Ot6kwoPa16 January 2024US Credit StrategyPage 2Deutsche Bank Securities Inc.Scenario AnalysisAs we outlined in our 2024 Outlook, this year is about discerning what landing the US economy is headed for.nA soft landing would be the best case, with renewed disinflation toward 2%, Fed rate cuts roughly in line with market pricing, a drop in rate volatility to early 2022 lev...
