JP Morgan has boosted its European high yield supply forecast to €120 billion, based on its expectation of a heavy autumn and winter fundraising season as issuers look to lock-in the lowest bond yields in 28 months.
In a note sent to clients on Sept. 4, the bank increased its 2024 issuance forecast from €100 billion, which by its calculations implies €40 billion of gross issuance still to come after the €80 billion of gross non-financial issuance in the year through the end of August.
“We expect a heavy volume of supply over the coming months, with issuers looking to lock-in funding with yields at the lowest levels since May 2022,” JP Morgan analysts led by Daniel Lamy wrote. “Activity has to-date been heavily skewed towards refinancing, though we note a recent pick-up in M&A and dividend financing.”
LCD has for the year through Sept. 6 tracked gross issuance of €69.05 billion, although this figure does not include corporate hybrids or sub-investment-grade debt issued by regulated financials. The figure is 117% ahead of the same period of 2023, and reflects a refinancing push which has driven nearly 58% of activity so far this year, according to LCD.
JP Morgan’s expectation of a further €40 billion of issuance is therefore likely to hinge on supply such as corporate hybrids that is not traditionally led by high yield origination desks. Goldman Sachs for example at its EMEA leveraged finance conference last week reportedly signaled a deal slate that includes just under €10 billion of high yield bonds in the visible pipeline.
JP Morgan’s revision is the second time the bank has lifted its supply forecast this year, having begun the year forecasting €80 billion of gross issuance, which was at the time towards the top end of analyst forecasts tracked by LCD. Goldman Sachs has this year also increased its issuance forecast from €65 billion to €100 billion, and analysts at the bank in a note Friday said markets remain on track to reach its forecasts.
In its note last week, JP Morgan also upgraded its forecast for net supply from €15 billion to €20 billion, amid a decent pipeline of M&A bridge loans for companies such as Acqua & Sapone, Forno d’Asolo and Almaviva, as well as a pick up in dividend deals.
Despite the rosier outlook for supply, JP Morgan also raised its default rate forecast from 2.5% to 3%, after weak data prints over the summer which showed signs that a cyclical upswing could be taking hold in Europe.
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