How has the labelled fixed-income market held up in view of macro events this year? We take a close look to pinpoint areas of strength. In particular, we highlight encouraging signs in the world of green debt, such as the number of repeat issuers among sovereigns.  

 

Need to know: The labelled fixed-income market has fared well so far this year despite headwinds. A small decline in issuance in the first six months reflected fewer sustainability-linked loans, rather than weakness across the board In fact, green bonds were a clear bright spot, enjoying a record first half with a 19% jump in issuance Sovereign green debt helped drive volumes, including inaugural issuance from Israel, Turkey and India. We expect strong growth going forward, with Japan also likely to make its debut

 

Defying sentiment

Overall, the labelled fixed-income market has fared well in 2023, despite concerns sparked in the first half by turmoil in the US banking system and the forced takeover of Credit Suisse (see Figure 1).

Total global issuance across all labelled bond instruments (including green, social, sustainability and sustainability-linked bonds, plus sustainability-linked loans) reached USD 717 bn in H1 2023, according to figures from BloombergNEF. This was slightly below the USD 839 bn issued in the first half of 2022, but still a healthy amount given the macro environment (see Figures 1 and 2).

A closer look shows that the decline in labelled fixed-income issuance does not reflect weakness across the board. Rather, it was driven mainly by one category: sustainability-linked loans. This is not entirely surprising, given that banks tightened lending standards in the wake of the sector turbulence in March.

 

FIG 1. Annual labelled fixed-income market issuance over time (USD billions)

Source: BloombergNEF at June 2023. For illustrative purposes only.

 

FIG 2. H1 labelled fixed-income market issuance over time (USD billions)

Source: BloombergNEF at June 2023. For illustrative purposes only.

 

FIG 3. H1 labelled fixed-income market issuance over time, by asset type (USD billions)

Source: BloombergNEF at June 2023. For illustrative purposes only.

 

Green bonds: strength to strength

By contrast, issuance of green bonds reached a record in H1 with an impressive 19% jump from a year earlier. The main driver was sovereign green debt. In fact, the USD 77.35 bn in issuance volumes for these bonds almost matched the full-year total of USD 82 bn in 2022 (see Figure 4).

It is always a good sign to see repeat issuers, and they came back in force in the first half. Germany led by volume, raising close to USD 15 bn via green sovereign bonds. Italy followed close behind, tapping the market for the equivalent of USD 13.5 bn. France indicated earlier in the year that it aimed to raise EUR 11 bn in sovereign green bonds. As of June 30, it had already issued more than the equivalent of USD 6 bn.

 

FIG 4. Comparison of H1 2023 sovereign green bond issuance (in USD billions) with yearly totals

Source: BloombergNEF at June 2023. For illustrative purposes only.

 

FIG 5. Sovereign green bond issuance in H1 2023 by issuer

Source: Bloomberg/NEF at June 2023. For illustrative purposes only.

 

While not one of the biggest hitters, Switzerland also bucked global trends with record volumes of labelled fixed income issued in the first half – similarly driven by green bonds. Green bond issuance in Swiss francs in H1 almost matched the total for the previous year – surging 98% from the same period in 2022 as both newcomers and repeat issuers tapped the market.

The drop in global issuance volumes for labelled fixed income in USD for H1 is concerning when compared with the same period in previous years. However, it is reassuring to see volumes of green bonds, sustainability bonds and social bonds all in line with 2022 levels.

Another encouraging sign for the overall market was the debut green-bond issuance from several sovereigns, including Israel, Turkey and India.

 

FIG 6. Comparison of 1H 2023 Swiss franc labelled-bond market with past annual issuance (CHF billions)

Source: BloombergNEF at June 2023. For illustrative purposes only.

 

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