Update on our 21 calls for 2021

1. The techniques dominate, the carry pays, the softness of the spreads potentially for 2H21

Techniques still dominate as the ECB remains active, net supply remains relatively low and fund flows are positive, albeit marginal. We still expect spreads to widen in the second half of the year.

2. The steepening curves will persist, hybrids will reach 50 billion euros

The curves have started to steepen in the last few weeks from very flat levels. We expect this to continue, especially as spreads widen and rates rise. This will be particularly visible in curves marked BBB. The hybrid supply amounts to 22 billion euros year-to-date.

3. Value in USD, the reverse yankee offer will reappear

The reverse Yankee offer has been limited so far, but we were expecting a late runner. Sitting at just EUR 25 billion year-to-date, we expect supply to pick up in the second half of the year as USD spreads are expected to underperform against EUR spreads.

4. Expected default rate too low

We expect default rates to rise slightly from here, but we also expect default rates to remain high for an extended period. Based on our economic outlook, spreads look too rich as we anticipate widening, further downgrades and fallen angels and the growing pool of leverage with worsening leverage metrics.

5. Prefer businesses to financials

We maintain our preference for corporates over financials due to the purchases of CSPP and PEPP and a more difficult environment for European banks in 2021. We maintain our overweighting in utilities, telecoms, healthcare, household goods and the bank bailout.

8. The supply of companies will decrease, but it will always be important

The offer so far is well in line with our forecast of 350 billion euros by the end of the year, in which we had forecast 200 billion euros in the first half and 150 billion euros in the second semester. We expect the supply in June to reach around 30-35 billion euros, leaving the offer for the first half of 2021 just below the expected 200 billion euros.

16. Financial offer: more or less the same

After new favorable TLTRO conditions, our financial offer forecasts have been revised downwards. Either way, it will still be very similar to a slightly lower offer compared to last year.

19. 2021: another pivotal year for sustainable sourcing

The growing ESG market is still unbalanced in terms of supply and demand. Indeed, there is a growing and strong demand for ESG debt. However, the supply is still insufficient in relative terms. Sustainability bonds offer issuers an easier way to access the ESG market. As the market grows, we will see normalcy and balance prevail.

20. ESG will outperform in 2021

The growing demand will indeed produce a “greenium” (green premium). However, this is not currently seen in the considerably tight environment in which we operate. We will likely see more ESG outperformance when spreads start to widen, as ESG spreads remain firmer.

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