The decoupling of US monetary policy that elsewhere in the world is the defining theme of the next 12 months as the market awaits the Fed’s rate rise.
But anyone looking for evidence of just why this divergence is taking place need look no further than the debt capital markets. Dealogic’s review of the first half of the year in debt capital markets makes sober reading for non-US participants.
While global corporate investment-grade volumes totalled $938.4 billion for the first half of 2015, just shy of 2014’s record $964.5 billion, US issuer corporate investment grade volume was $384.7 billion, the highest on record and 41% of the global total. The only time that the US has accounted for a greater total of global business was the first half of 2008, when it was 45%. Bankers must be hoping that the rest of the year doesn’t pan out the way that one did.
Elsewhere the story is very different. DCM volumes in EMEA were down 23% to $203.4 billion for the first half (with France alone down 61%) and Asia Pacific slumped 17% to $302.8 billion.
Market volatility has taken its toll in the global leveraged finance market where volumes fell 32% in the first half of this year to $843.7 billion. Nevertheless, while global high yield volumes fell 15%, the US high yield market was up 10%. Not so in Asia Pacific, where volumes fell 15% and in EMEA, which has suffered a slump of 41%.
Indeed, the only DCM asset class in which the US has suffered a slump in volumes so far this year is securitization, where global volumes dropped by 25% to $279.4 billion. Despite falling, US securitization volumes still accounted for $202.1 billion of the total, a full 72%.
The extent to which US banks and issuers now dominate DCM is extraordinary. The global DCM league table rankings for the first half see US banks firmly entrenched at the top of the league tables.
JPMorgan remains number one with a 7.2% market share but US houses also take the next two spots, as Bank of America Merrill Lynch is second with 6.1% and Citi third with 6%. The highest-ranked non-US bank is Barclays at number four with 5.9%.
|US dollar: special focus|
On the issuer side the top 10 corporate bonds for the first half of the year are all from US companies as well, with the only exceptions being Canada’s Valeant and the Netherlands’ Shell. AT&T’s $17.5 billion acquisition-related bond issue at the end of April was the third highest on record behind Verizon’s $49 billion deal in 2013 and Actavis’s $21 billion issue in March this year.
US banks are reaping the benefit of their own stronger balance sheets and the wave of merger activity taking place at home – particularly in the healthcare sector. Indeed, global corporate IG revenue was $3.5 billion in the first half, the highest on record. This has resulted in the disappearance of non-US players from the top of the league tables. Barclays, which is Euromoney’s best global debt house this year, is the only European bank left with a big presence in the US capital markets. Deutsche Bank, having just been downgraded to triple-B, may now struggle to maintain its former dominance in these markets.
While the US recovery story may be being oversold, particularly in the strength of the US dollar, the story of the DCM markets for the year to come is firmly a US one.