Global bond issuance set to contract 16% in 2022 amid market volatility, S&P says

Total issuances in the first half stood at $4.2tn

An electronic board with stock market prices in Shanghai. Bond issuances remained strong in the Asia-Pacific region, led by China. Reuters

Global bond issuances are set to contract by 16 per cent in 2022 after a weak first half characterised by market volatility and rising interest rates, an S&P Global Ratings report has said.

The heightened volatility and rate increases began in the first quarter and continued throughout the first six months the year as inflation stress was compounded by the growing risk of recession, S&P said on Monday.

“These growing headwinds have all contributed to slowdowns and contraction in second-quarter bond issuance for every sector, relative to the first quarter, which will keep global bond issuance in 2022 well below last year's level,” the report said.

Recession fears are rising around the globe amid the coronavirus pandemic, the Ukraine conflict and central bank moves to their tighten monetary policies.

Inflation in the US, the world's largest economy, is at a 40-year high, with the US Federal Reserve raising its interest rate by another three quarters of a point last month.

The International Monetary Fund also lowered its growth forecast for the global economy to 3.2 per cent this year, from its previous forecast of 3.6 per cent in April.

“While there was the possibility that borrowing costs could stabilise in the near term and primary markets would resume normal activity, persistently rising inflation has prompted markets to price in more interest rate increases by most central banks,” S&P said.

“At this point, there appears to be little to no possibility for positive surprises in the near term for the global economy or financial markets.”

Non-financial corporate issuances for the year are expected to decline about 30 per cent, while issuances by financial services companies will decline by 10 per cent, the report said.

It also said global structured finance issuance could drop 12 per cent by the end of 2022 while US public finance issuance could decline by about 14 per cent.

International public finance issuances are forecast to remain flat for the year.

“Of all asset classes, the least likely to feel the impact of higher policy rates from geopolitical stress is international public finance,” the rating agency said.

“But that is only because Chinese issuers are now accounting for even more of the total [84 per cent in the first half of 2022 versus 72 per cent for the full 2021 fiscal year].”

Despite national policies aimed at reducing debt, “we expect refinancing needs to keep Chinese issuers' totals strong this year”, it said.

Global bond issuance in the first half stood at $4.2 trillion, down by about 11 per cent from the first half of 2021, according to the report.

The largest declines were in non-financial companies (down 33 per cent) while US public finance issuances dropped 14.5 per cent during the period.

These were offset by gains in structured finance (up 20.4 per cent) and international public finance (up 22 per cent).

The largest US corporate issuers were dominated by the financial sector in the second quarter.

The Bank of America topped the list with two three-part senior unsecured note offerings in April worth $13.3 billion, according to the report.

Emerging and frontier market corporate bond issuances, including unrated bonds, slowed across all regions in the second quarter, S&P said.

Issuances remained strong in the Asia-Pacific region, led by China, which put up a strong performance.

The largest emerging and frontier market issuer of rated bonds in the second quarter was TSMC Arizona, a subsidiary of Taiwan Semiconductor Manufacturing.

It issued a four-part senior unsecured note offering worth $3.5bn on April 19, which it used for general corporate purposes, the report said.