Chart 1

Table 1

S&P Global Ratings Credit Research & Insights expects global bond issuance to contract about 19% in 2022 but rise about 2% in 2023 (see chart 1 and table 1).  Large declines in the year to date, combined with little reason to expect any positive surprise in the remainder of the year, should keep bond issuance lower in 2022 across all asset classes. These large declines should put 2023 growth rates in a good starting position. We believe interest rates may at the very least stabilize in 2023 or possibly decline later in the year, which should help support both supply and demand for new debt next year. Maturity lengths have been extended in recent years, but the proportion pushed out beyond the next 12-18 months is still modest. Cash buffers built up over the pandemic have been falling quickly, which should also support an increased need for funds among some issuers.

That said, interest rates are now much higher than in the past two years, and any funds acquired now or in the near future will be costly, which could accelerate defaults quickly if the expected economic downturn next year becomes deeper than forecast--particularly if Europe encounters a downside scenario of sharply higher energy prices and much higher interest rates from the European Central Bank (ECB) and Bank of England.

Since 2020, many economic and macro-credit distortions have surfaced: the deepest but shortest recession in nearly 100 years; trillions in fiscal support, combined with trillions of central bank liquidity facilities; and the arguably less disruptive than anticipated economic impact of pandemic-related lockdowns. Markets and central banks have had to process all of this with little precedent and an unclear timeline for when or even if previous norms may return.

These factors have made global bond issuance much more volatile in the past three years, and this environment will likely continue into 2023. This has led us to adopt wide ranges for 2023 projections. Much will come down to the course of inflation and central banks' monetary policies in reaction.

Pivot Expectations Abandoned; Conditions Continue Tightening

At the end of the second quarter, secondary market yields and credit spreads had reached their highest levels all year. But within the first week or two of the third quarter, yields fell as some market participants saw hope in plateauing U.S. inflation, which some took as an opportunity to bet that the Federal Reserve may pause or even reverse its hawkish approach to monetary policy. By mid-August, however, inflation readings came in stronger than expected, and the Fed released more hawkish remarks along with even larger 75-basis-point (bps) hikes to the federal funds rate.

Yields around the world then resumed their upward climb and are now at multiyear highs (see chart 2). Inflation readings in Europe have even exceeded those in the U.S., while the U.K.'s recent fiscal proposals have roiled yields on gilts as well as propelled the already aggressive slide in the pound.

Chart 2

The pace of interest rate increases in 2022 has been faster than at any time in the past 41 years. The average five-day increase in the 10-year U.S. Treasury yield is 6.2 bps in 2022 through September--just over 2 points higher than the previous record of 4.1 bps in 1994 (see chart 3). And the trend is similar for sovereign bond yields around the world, as well as for investment-grade (rated 'BBB-' or higher) corporate bonds.

However, history shows that prior bouts of quickly increasing yields were followed by episodes of quickly falling yields or years with minimal yield movement. While it is no guarantee, if this pattern holds, it could mean borrowing costs will at least stabilize in 2023, which should generally support healthier issuance totals relative to this year. But risks remain firmly on the downside, and interest rates will not likely decline until central banks are comfortable with future movement in inflation.

Additionally, this would likely apply only to benchmark rates and the investment-grade segment. In the past, recessionary periods have tended to produce very quick and extreme increases in speculative-grade (rated 'BB+' or lower) borrowing costs. This has not yet happened to the same extent in 2022, and if a recession were to occur next year, it is more likely that speculative-grade yields would increase the most at that time.

Chart 3

Relative risk, combined with globally uneven monetary policy tightening, has resulted in a much stronger U.S. dollar this year. Most currencies are now much weaker relative to the dollar than at the start of the year. Because we report issuance totals in U.S. dollars, currency depreciation can drag on aggregate totals. And in the case of 2022, the currencies most heavily represented by bond denomination outside of the U.S. dollar, even the normally fixed-peg Chinese renminbi, have been particularly hard hit this year (see chart 4).

Chart 4

The impact of a strengthening dollar in 2022 cannot be understated. Euro-denominated bonds represent the second-largest total after those denominated in dollars. Within European issuance, the declines of 2022 are still evident when reported in euros, but to a lesser extent than when converted to dollars (see chart 5): Year-to-date declines in international public finance and nonfinancial corporates are still large but roughly 6%-7% less than if reported in dollars. For financial services, 2022 declines are essentially nonexistent, and for structured finance, a year-to-date decline of about 4% in U.S. dollars becomes a gain of over 7% if reported in euros.

Chart 5

Sizable declines in issuance are unavoidable for 2022, but they also provide easy comparables for 2023 growth rates to exceed, even if bond issuance totals still fall below recent years' averages. Normally we would expect strong growth rates following a year of such large declines as in 2022. But weak expectations for the global economy in 2023 (including a recession in the U.S. and a marked slowdown in Europe) will likely limit investment and other similar drivers of new issuance, leaving any overall increase in issuance somewhat limited.

The future of interest rates remains critical, and history suggests we should expect declining rates in 2023, but with inflation still running hot, central banks will keep raising benchmark rates for the remainder of this year and likely into the first quarter of 2023. With so much of the future unknown, risks to our baseline forecasts are firmly toward the downside.

Issuance Projections

We expect nonfinancial issuance to decline about 35% this year, followed by a rebound of about 10% in 2023.  Global nonfinancial corporate issuance has had one of its largest annual declines through most of 2022--down 35%. And we expect this rate of contraction will continue or even worsen by year-end. Interest rates and market volatility will likely remain high through the fourth quarter, keeping the issuance shortfall largely in place.

Much will depend on whether interest rates stabilize. We feel they likely will in 2023, but even if they do, they will most likely be higher than in the past 10 years, making borrowing more costly. And if corporate rates do stabilize or fall, it is more likely this will happen for investment-grade issuers.

Through 2020 and 2021, firms were able to build up massive cash holdings through unprecedented issuance totals. This has given them wiggle room to avoid having to issue as much debt as usual this year amid the quickly rising rates. But S&P Global Ratings expects much of these stockpiles from rated corporate entities will decline by year-end (see chart 6). This should support issuance in 2023.

Chart 6

If rates stabilize and cash balances fall as expected, these factors will help spur issuance. However, our base case assumes recessions in the U.S. and U.K. and very low growth in the rest of the world. This should limit investment, as already evidenced by a relatively subdued M&A pipeline.

The potential for deeper or more widespread recessions is underpinning our pessimistic range of expectations for 2023 issuance. For example, challenges to the Chinese economy will continue, particularly in the property sector, which has easily been the largest issuer of corporate debt in recent years. As official growth targets become less of a priority, prior moves to boost output via leverage will likely become less used.

We expect financial issuance to finish 2022 down 14%, followed by only a marginal increase in 2023.  Bond issuance by financial services companies started strong in the first quarter but has declined since. Bank earnings largely held up in the second quarter and had a mixed to slightly positive showing for the third quarter so far. That said, we expect a decline in financial services issuance through the end of the year, due to this year's stressors and the historically stronger total in fourth-quarter 2021.

Banks have increased issuance this year, but most other financial institutions have had declines--most notably brokerages. Some of this falloff is due to unusually strong issuance among global brokers in 2021, but sustained higher market volatility might have also led to a more cautious stance for brokers this year. We expect similar levels of brokerage issuance to continue in 2022, which should help stabilize overall issuance by financial institutions.

Many firms were able to refinance existing debt on historically favorable terms in 2020 and 2021. Part of this included issuing debt with longer maturity lengths, enabling them to push out their maturity profiles. And the amounts coming due in the near term have indeed fallen relative to the pre-pandemic period, but not drastically (see chart 7). The proportion of total outstanding debt from financial services companies we rate that is coming due in 2023 is roughly 2% lower than the proportion due at this point in 2019 (for debt coming due in 2020). A lower proportion of maturities in the next 12-18 months may limit issuance ahead, but given only a marginal decline, this impact should be small.

Chart 7

With the ECB's third round of targeted longer-term refinancing operations (TLTRO III) to begin phasing out, bank issuance in the region may rebound as a result. Indeed, bank issuance in Europe is up slightly from 2021. However, as the ECB begins to apply quantitative tightening, in part by encouraging banks to repay their TLTRO loans, this could also put a drag on overall investment, as also expected to happen in the U.S. as the Fed continues to reduce its balance sheet.

Annual issuance growth from China has been especially strong in recent years, with roughly $200 billion increases in 2019 and 2020 and a $168 billion increase in 2021--annual growth rates of 56%, 34%, and 20%, respectively. China's issuance is still ahead of 2022 totals through September, but only up 1.9%. The healthy refinancing pipeline, with over $1.5 trillion of bonds due in the second half of 2022 through 2024 (based on face value), should limit downside from rising global market volatility or leverage clampdown efforts, but a slowing Chinese economy is becoming more likely in 2023 as the outsize property sector continues to experience a slowdown.

Global structured finance issuance could decline 5% for full-year 2022.  Following a post-Great Financial Crisis (GFC) record of $1.3 trillion in 2021, global structured finance issuance lost its momentum, coming in at $973 billion through the third quarter, for a 7% year-over-year increase. While this still outpaces last year, a confluence of risks, such as persistently high inflation, tightening monetary conditions, destabilized energy prices, and escalating geopolitical tensions, continue to plague markets, and we expect issuance will enter negative territory by year-end. This also owes to an exceptionally active second half of 2021, which will present a difficult mark to compare against.

That said, we've increased our structured finance issuance forecast to -5% (with a range of -10% to flat) relative to last quarter. The forecast is based on continued issuance outside the U.S., albeit with risk toward the downside. Since last quarter, S&P Global Ratings economists have lowered their GDP growth projections and increased their estimate of recession risk. With some support from strong first-quarter issuance, however, we anticipate the 2022 total will still land above 2018-2020 levels. While our overall issuance growth forecast is negative, we expect mixed outcomes, with some sectors and subsectors likely to see modest declines while others may remain flat or outperform last year's volume.

We expect a similar issuance decline in 2023. Prolonged economic headwinds could curtail our issuance growth expectations.

While the U.S. represented nearly two-thirds (61%) of the global structured finance market in 2021, the covered bonds sector (which is nonexistent in the U.S.) continues to lead the increase in issuance in Europe and the rest of the world. However, accommodative monetary policy (which allowed for relatively cheap funding for lenders to issue these debt securities) is quickly diminishing as central banks take a more aggressive approach to tackling inflation. As such, we expect the pace of covered bond issuance to continue to cool in the fourth quarter.

With the U.S. representing such a significant portion of the global structured finance market, we expect this region to be the leader of the year's overall decline. While some sectors were more resilient than others to the market and economic pressure through the first half, all four major sectors (asset-backed securities, collateralized loan obligations, commercial mortgage-backed securities, and residential mortgage-backed securities) are in the red through the third quarter, and the declines should become deeper by year-end after strong fourth-quarter totals in 2021.

U.S. public finance issuance could decline about 15% this year but expand about 5% in 2023.  Heightened market volatility and rising interest rates have led to a fairly consistent decline in U.S. public finance issuance volume over the past three quarters, down 14% relative to 2021. This is the second-largest decline by asset class this year, after nonfinancials.

We assume about a 15% decline in issuance for 2022, which would call for less than $100 billion in issuance for the fourth quarter. Our early forecast for 2023 ranges from a 5% increase to about a 15% decrease. The major factors we are watching include economic growth, rising rates, and inflation, as well as potential legislative gridlock or even debt ceiling brinkmanship from the new Congress.

International public finance issuance could fall slightly in 2022 and 2023.  Of all asset classes, the least likely to feel the impact of higher policy rates and geopolitical stress is international public finance. But that is only because Chinese issuers are now accounting for even more of the total (83% through September 2022, compared with 72% in all of 2021). Despite national policies aimed at reducing debt, we expect refinancing needs to keep Chinese issuers' totals strong this year. And Chinese debt markets are generally limited to domestic lenders with very little foreign involvement, in effect shielding issuers from quickly rising rates across the rest of the globe.

Meanwhile, issuance from the rest of the world has contracted 42% relative to 2021. Only issuance out of Argentina and New Zealand increased relative to the same period in 2021, while China's total is up 15%. As we look to 2023, we expect the Chinese government will not significantly increase quotas for bond issuance by local and regional governments.

2022 summary

Global bond issuance through September totaled $6 trillion, down 14.5% from the same point in 2021. The largest declines remained among nonfinancials (down 35%) and U.S. public finance (down 14%), followed closely by financial services (down 11%). International public finance had a 2% decline, while gains in structured finance have continued (up 9%) but are slowing quickly. These figures cover only long-term debt (maturities greater than one year) and exclude debt issued by supranational organizations. All references to investment-grade and speculative-grade debt refer to issues rated by S&P Global Ratings.

U.S. Financing Conditions Are Restrictive

U.S. financing conditions are restrictive, and more policy tightening from the Federal Reserve over the next three months will add to that. As the effects of tighter monetary policy are setting in, high inflation has stretched consumer budgets and supply-chain challenges have persisted for businesses. Given these headwinds, S&P Global Ratings economists now forecast the U.S. will fall into recession in 2023.

If there is a recession next year, some uncertainty will persist around the willingness of the Federal Reserve to provide policy support amid its commitment to returning inflation to its 2% target. If the Fed is slow to adjust monetary policy as the U.S. falls into recession, access to capital could be restricted for longer. Primary and secondary market yields are currently restrictive, but secondary market credit spreads remained at neutral levels in the third quarter. In a scenario where policy support is slower to arrive, benchmark rates may remain relatively high as credit spreads widen--the cost of capital could be much higher for issuers.

Table 2

U.S. bond issuance dips after volatile September

After volumes slowed in June, strong investment-grade totals led a rebound in rated U.S. corporate bond issuance in July and August. But volatile market conditions caused issuance to stall again in September with weak volume across all rating categories. As the quarter ended, issuance dipped to the lowest level for the third quarter since 2011.

Investment-grade issuance totaled $201.7 billion, with strong 'AA' volume. Speculative-grade issuance totaled just $17.6 billion--the lowest amount of speculative-grade issuance for the quarter since 2008. There were no issues rated 'CCC' to 'C' during the quarter, and most speculative-grade deals priced at restrictive levels.

Strong financial issuance led the pickup in volume during July and August, but issuance was weak for both financials and nonfinancials in September. For the quarter, financial issuance totaled $93.1 billion, with strong 'BBB' and 'AA' volume. Nonfinancial issuance for the third quarter totaled $126.2 billion, with strong issuance in just the 'AA' category. This was the lowest volume for nonfinancial issuance in the third quarter since 2018.

Rated nonfinancial issuance was led by high tech ($35.9 billion), utilities ($20.6 billion), retail/restaurants ($18.2 billion), chemicals, packaging, and environmental services ($10.8 billion), and consumer products ($9.1 billion).

Chart 8

JPMorgan Chase & Co. topped the list of largest U.S. issuers in the third quarter. It issued a $7 billion two-part fixed-to-floating-rate senior unsecured note offering in July and a $3.5 billion one-part fixed-to-floating-rate subordinated unsecured note offering in September.

Table 3

U.S. public finance issuance remains lower through the third quarter

U.S. municipal bond issuance in the third quarter of 2022 was $93.5 billion, down from $110.2 billion in the second quarter and from $124.7 billion in the third quarter of 2021. Issuance was highest in August at $40.9 billion, the second-highest monthly total of the year, but this was followed by the lowest total of the year in September, at $25.1 billion.

Chart 9

New money issuance rose to 81% of all issuance through the third quarter, compared with 66% for all of last year. Refunding fell to 12% from 23%, while mixed-used issuance was 8%, down slightly from 10% last year (see chart 10).

Chart 10

The largest single issues from the third quarter of 2022 were a special obligation revenue bond from Massachusetts for $2.7 billion, followed by California with $2.3 billion and the New York State Thruway Authority with $2.2 billion.

Table 4

For the year to date, New York has issued the most debt so far, with $40.7 billion, up 7.5% from this time last year. Texas is second with $24 billion, down 40% from this time last year (see table 5).

Table 5

U.S. structured finance issuance falls 8% in the year to date

U.S. structured finance issuance reached $504 billion through the first three quarters of 2022, retreating to an 8% year-over-year decrease from a 7% increase through the first half. Rising interest rates, amid broader market volatility, caused appetite for longer-duration spread products to continue its slump in the third quarter, erasing the 36% gain through the first quarter (see chart 11).

The cost of debt for issuers increases with rising rates, while investors tend to move toward more liquid markets. Nevertheless, interest rates remain below historical norms, and demand still exists for spread products. Higher risk-adjusted yield, coupled with the largely stable performance offered by many structured finance sectors, could remain attractive to some investors.

Chart 11

U.S. asset-backed securities (ABS) issuance was down just 1% through the third quarter and will likely continue to decline in the coming months but remain mixed across subsectors. Credit card ABS exhibited the largest year-over-year increase through September, which we attribute to the all-in cost-of-funds advantage, coupled with strong ratings performance. Personal/consumer loan ABS was also above its year-to-date total from last year, and commercial ABS (equipment, fleet lease), though slightly trailing last year's pace, also contributed to the overall ABS total.

Meanwhile, all other ABS subsectors have since fallen below last year's volumes. Auto loan and lease ABS, which generally lead U.S. ABS issuance, were poised to be the most affected by the Russia-Ukraine conflict because the region has important raw materials for auto production. In addition, S&P Global Mobility further reduced its light vehicle production forecast in October given ongoing supply-chain challenges, continuing the trend of the previous several months. Decreased auto production means contracted sales and therefore loan originations for auto ABS products. Used-vehicle prices have also tempered from their January peak.

Meanwhile, despite struggling behind last year's clip, nontraditional ABS has supported overall ABS issuance, with collateral such as recovery bonds, rate reduction, recurring revenue, solar, timeshare, and insurance premium posting year-over-year increases through September.

U.S. residential mortgage-backed securities (RMBS) issuance was down 1% through the first three quarters of 2022. Economic fundamentals such as strong housing demand and supply shortages boosted strong home price growth. While this eroded affordability, record-low mortgage rates supported RMBS originations through the first quarter. However, housing demand has since begun to contract as interest rates have increased and the prospect of a recession looms. As such, we expect loan originations to cool and, in turn, the issuance of U.S. RMBS deals to continue to decrease.

ABS and RMBS are more consumer-oriented, and they may be more susceptible to issuance declines dependent on factors such as unemployment and consumer spending. S&P Global Ratings economists expect unemployment to reach 4.8% by the end of 2023, which will in turn moderate consumer spending and decrease loan originations. Issuance on longer-duration assets such as residential mortgages could experience a larger decrease than shorter-duration ABS products. Even so, built-in structural protections could otherwise limit rating actions due to an increase in delinquencies or defaults (see "U.S. Economic Downside Impact--Inflation Drives Risks," Sept. 22, 2022).

U.S. CMBS issuance hit a post-GFC record in 2021 but is now down 3% year over year. The rapid increase in interest rates, combined with wider spreads and broader uncertainty--especially about the future of office space demand--will likely challenge fourth-quarter and 2023 issuance.

Structured credit new issuance volume was down 21% through the third quarter, following a record $187 billion for full-year 2021. The leveraged loan market has also fallen behind last year's pace, by roughly 60%, setting the stage for declines in structured credit issuance in full-year 2022. In addition, spreads remain considerably wider than a year ago, although new issuance has been relatively consistent month to month.

In contrast, after smashing its annual issuance record last year, the refinancings and resets market has all but dried up, with zero pricings in the third quarter. As interest rates continue to rise and spreads widen, it becomes less and less advantageous for issuers to refinance preexisting deals at better rates.

European Financing Conditions Tighten Quickly

Financial conditions in Europe tightened quickly in the third quarter with political risk on the rise as the Russia-Ukraine conflict and high inflation loom over the region. Companies in need of liquidity face challenging capital markets as 10-year benchmark rates, bank lending standards, primary markets, and secondary markets are all now restrictive. European defaults have increased recently, with four 'CCC'/'C' restructurings through distressed exchanges or bankruptcy in September and two defaults so far in October, with one distressed exchange and one issuer unable to secure financing amid increased working capital needs.

The unprecedented deterioration in trade, namely imported commodity prices, and tighter monetary policy will slow growth in the region over the coming quarters. S&P Global Ratings economists now forecast 3.1% and 0.3% GDP growth for the eurozone in 2022 and 2023, respectively (compared with forecasts of 2.6% and 1.9%, respectively, in June), while they forecast 3.3% and -0.5% GDP growth for the U.K. (compared with forecasts of 3.2% and 1.0%, respectively, in June).

Table 6

Choppy volume continues in Europe

Choppy volume continued in Europe through the third quarter. Issuance plummeted to just €13.5 billion in July, the lowest level for the month since 1996, before surging to €82.7 billion in August, the month's strongest level on record. Strong investment-grade issuance led the rebound in August, with 79% of volume during the month in the 'A' and 'BBB' rating categories. Volatility returned in September, and with it came weak volumes across all rating categories. At quarter-end, volumes had reached the lowest level for the third quarter since 2015.

Investment-grade issuance totaled €138.8 billion in the third quarter. Speculative-grade issuance totaled just €9.9 billion--the lowest amount of speculative-grade issuance for the quarter since 2011. Most speculative-grade deals priced at restrictive levels, and there were no issues rated 'CCC' to 'C' during the quarter.

Financial issuance led the pickup in volume during August, accounting for 85% of total volume in the month. For the quarter, financial issuance totaled €111.7 billion, with strong 'A' and 'BBB' volume. Nonfinancial issuance for the third quarter totaled just €37 billion, with weak issuance across all rating categories. This was the lowest volume for nonfinancial issuance in the third quarter since 2011.

Rated nonfinancial issuance was led by utilities (€7.5 billion), consumer products (€7.2 billion), health care (€5.2 billion), transportation (€3.8 billion), and high tech (€3.5 billion).

Chart 12

The largest European corporate issuers in the second quarter were financial companies. The top issuer was Credit Suisse Group AG, which issued a €6.1 billion three-part fixed-to-floating-rate senior unsecured note offering and a €1.7 billion two-part senior unsecured note offering in August.

Table 7

European structured finance volume up once again on strong covered bond issuance, despite slowing growth for structured credit

European structured finance volume has risen this year on strong covered bond issuance, but momentum has slowed. Covered bond issuance was up 76% year over year through third-quarter 2022, with the main contributors being the Netherlands, Austria, France, and Germany, all of which have year-over-year growth rates near or above triple digits in the sector (see chart 13). The main factor behind this growth is ECB monetary policy, which has allowed for comparatively inexpensive funding for banks to issue these debt securities.

We expect future covered bond issuance to be largely influenced by market conditions and legislative developments. Issuance in Central and Eastern Europe could fall due to the Russia-Ukraine conflict, while more established, highly rated issuers could benefit from their covered bond programs as other sources of debt become relatively more expensive to place with investors. Other recent developments, such as the transition to the European covered bond directive, may also support issuance, especially in countries that lacked an established framework or whose framework was otherwise abandoned (see "Conflict And Market Conditions Drag On Covered Bond Issuance In New Markets," Sept. 15, 2022).

That said, the ECB has become increasingly aggressive in tackling eurozone inflation, which hit 10% in September. While the last two meetings have yielded a total 125 bps increase in rates, additional large rate hikes may still be on the horizon, challenging covered bond issuance.

Primary issuance of leveraged loans in Europe declined substantially in the first half, compared with a record first half in 2021 and elevated fourth quarter. Decreased originations in the latter part of the first quarter through the third quarter consequently affected the packaging of European collateralized loan obligations (CLOs), with issuance down 29% through September 2022. We expect leveraged loan originations to continue to decrease as interest rates rise, inflation remains at record levels, and the Russia-Ukraine conflict continues disrupting the European economy. Further, the euro has now dropped below par with the U.S. dollar for the first time in 20 years, which could also dampen new CLO issuance if investors move to other markets.

Eurozone RMBS issuance, supported by strong housing fundamentals and elevated consumer spending, has also contributed to 37% year-over-year structured finance growth in the region. RMBS issuance in the U.K. also had a solid showing through the third quarter, up 5% year over year.

While RMBS has historically driven the U.K.'s structured finance market, covered bonds remain the bright spot in Europe, up 217% year over year through the first three quarters. The Bank of England increased its lending rate by 50 bps in September following multiple 25 bps increases this year in attempts to confront heightened inflation (currently 10.1%). This, along with larger anticipated rate increases, will likely temper covered bond issuance through the remainder of the year as tighter monetary policy makes this type of debt less attractive.

Chart 13

Emerging Market Financing Conditions Show Some Volatility

After tightening from August through the middle of September, emerging market spreads sharply widened by the end of the month and were essentially flat for the third quarter (tightening 9 bps). The Latin America region's spread widened slightly (6 bps); the Asia region's spread tightened slightly (7 bps); and the Europe, Middle East, and Africa (EMEA) region's spread also tightened (28 bps).

Within emerging markets, the economic slowdown in the U.S. will more directly affect Latin America, while the Russia-Ukraine conflict is weighing most on emerging Europe. However, slowing global growth, high inflation, and higher global rates are headwinds for each of these regions.

Chart 14

Volume slows across emerging markets

Emerging and frontier markets corporate bond issuance (including unrated bonds) slowed across all regions in the third quarter compared with the same period a year ago. Issuance remained strong in China but was light in EMEA, Latin America, and Asia-Pacific (excluding China). In the third quarter, 98% of corporate issuance in emerging and frontier markets was unrated by S&P Global Ratings, with 88% of this unrated issuance from China.

Emerging and frontier market dollar-denominated bond issuance slowed to just $19.1 billion in the third quarter, the lowest total for the quarter since 2008. Dollar-denominated issuance was weak across all regions, with China seeing the most at $13.5 billion.

Rated emerging and frontier market bond issuance for the third quarter totaled just $7.8 billion, the lowest amount for the quarter since 2007. Rated issuance was weak across all regions, and by rating category, only 'AAA' had strong volume.

Chart 15

Chart 16

The largest emerging and frontier markets issuer of rated bonds in the third quarter was Asian Infrastructure Investment Bank, with three note offerings totaling $2.6 billion.

Table 8

Including unrated issuance, the largest emerging and frontier markets issuers tend to be state-owned Chinese issuers. The largest issuer in the third quarter was Agricultural Bank of China Ltd., with two note offerings totaling $14.4 billion.

Table 9

China continues to dominate international public finance issuance

After increases relative to 2021 through the first half of this year, weak international public finance issuance in the third quarter has pushed 2022 totals to a decline through September. Third-quarter issuance out of China was $110 billion, down 56% relative to the third quarter of last year and the weakest third-quarter total since 2018. Nonetheless, China accounts for nearly 83% of the 2022 total so far. China's markets are largely limited to domestic investors, so it is not totally surprising that increased rates elsewhere were not such a limiting factor there. That said, local governments are piling on debt and will likely need to cut back or stabilize their debt loads moving forward.

Outside of China, issuance was down 42% through September, with nearly every country showing sizable drops relative to last year or not issuing at all. Canada, Germany, and Japan accounted for about 73% of non-China total issuance, with Australia adding another 11.5%.

Data on non-U.S. public finance volume is not reliable for determining the true size of overall borrowing, but the numbers can suggest major trends. The four years prior to 2020 averaged extremely high issuance of over $630 billion, and 2020 exceeded the $1 trillion mark for the first time, only to be eclipsed by 2021 at $1.2 trillion.

Structured finance issuance growth outside of the U.S. and Europe plummets but remains positive

After strong showings in the first three quarters, structured finance issuance outside of the U.S. and Europe is likely to post a modest year-over-year gain in 2022. So far, this issuance has largely come from covered bonds, but it also includes robust offerings in Latin American repackaged securities and Canadian ABS.

On the other hand, Chinese structured finance issuance volume will likely decline in 2022, due in large part to lockdown measures to control the spread of COVID-19. Housing prices have already fallen during lockdowns (a trend that could continue), and the spillover effects from the Russia-Ukraine conflict could exacerbate this problem.

Meanwhile, Australia seems to be far removed from the impact of the Russia-Ukraine conflict, particularly in structured finance issuance. Aside from covered bond issuance, RMBS issuance has historically driven Australia's issuance, and recently increasing ABS issuance. However, securitization issuance through the third quarter was down 15% year over year, down from 18% growth through the first half.

Related Research

• Global Credit Conditions Downside Scenario: Recession Risks Deepen, Oct. 12, 2022
• Economic Outlook U.K. Q4 2022: Under The Pump, Oct. 3, 2022
• Economic Outlook Emerging Markets Q4 2022: Further Growth Slowdown Amid Gloomy Global Prospects, Sept. 26, 2022
• Economic Outlook Eurozone Q4 2022: Crunch Time, Sept. 26, 2022
• Economic Outlook U.S. Q4 2022: Teeter Totter, Sept. 26, 2022
• Economic Outlook Asia-Pacific Q4 2022: Dealing With Higher Rates, Sept. 25, 2022