Corporate Debt Revenue Rises, Alongside Interest Rates & Inflation

Cameron Cole

Product Specialist, Data & Analytics Solutions

April 20, 2023

Global View

In a volatile macroeconomic environment, the fixed income market continued its robust securities lending performance in Q1 2023, generating $666 million in revenue, up 25% YoY. The period continued to be characterized by rising interest rates and inflation, forcing fixed income yields up and presenting an opportunity for directional trading. As a result, corporate debt continued to drive significant revenue gains throughout Q1 2023, generating $240 million, equivalent to a 66% increase compared to Q1 2022. The uptick in corporate debt revenue was largely driven by an 67% increase in fees, while on loan and lendable balances remained steady.

Increases in corporate bond revenue were seen across both investment grade and high yield (ratings below BBB) debt. Revenue from investment grade corporate issuances were up 71% YoY, generating $105 million, primarily attributed to a 69% increase in fees. On the other hand, high yield corporate debt produced $135 million in revenue in Q1 2023, a 63% YoY uptick, arising from a 73% increase in fees while on loan balances were down 5%.

North America

Regionally, the bulk of the revenue increase came from bonds issued by North American corporations, generating $124 million in lending revenue, equivalent to a 96% increase compared to the same period in 2022. This impressive performance was primarily driven by a 92% increase in fees YoY. On the other hand, falling bond prices were counterbalanced by a 13% increase in the on-loan quantity of corporate bonds, resulting in balances remaining flat YoY.

The largest revenue-generating corporates in the region were SIX FLAGS 5.5% 15/04/2027, MPH A LLC 5.75% 01/11/28 and MICRO 0.125% 15/11/24; with a combined revenue of $8.9 million. Most notably, SIX FLAGS 5.5% 15/04/2027 revenue was up over 6,200% compared to Q1 2022, with fees and on loan balances up 2,777% and 121% respectively. At an issuer level, SIX FLAGS was the number two revenue generating company, although there may be a short play on the one issuance maturing in 2027 as all other issuances traded GC and the common stock (SIX) has seen low demand for an extended period. 3M COMPANY issuances took the top spot, with a combined revenue of $5.7 million spread out across four issuances all earning more than $500,000.

North America - Top 5 Revenue Generating Issuances v Issuers

EMEA

Corporate debt continued its strong performance in EMEA, generating $86 million in revenue, an increase of 46% compared to Q1 2022. Revenue gains can be credited to a 45% increase in fees while lendable fell by a moderate 12% and on loan balances stayed relatively unchanged at $71.2 million. Most of the revenue came from French, German and British corporation debt, with combined earnings of over $40.3 million.

The top three revenue-contributing issuances in EMEA were TEVAL 5.125% 09/05/29, THYSS 2.5% 25/02/25 and ARCEL 4.25% 16/07/29; with an accumulative revenue of $2.1 million. However, at the issuer level, the finance sector took centre stage with BNP PARIBAS and HSBC combined issuances generating $1.5 million and $1.4 million, respectively.

EMEA - Top 5 Revenue Generating Issuances v Issuers

APAC

DataLend continues to see an increase in demand for APAC corporate debt, generating $24.9 million in Q1 2023. Fees across the region averaged at 88.33 bps while on loan balances remained steady at $11.4 billion. A standout sector for Asian corporate debt is real estate. The top earning APAC issuance for Q1 2023 was LONGFOR GROUP HLDGS LTD 4.5% 16/01/28, netting $539,000, with combined issuances earning over $840,000 for the quarter. Likewise, real estate issuer COUNTRY GARDEN HOLDINGS corporate debt generated over $1.5 million overall in Q1 2023, far outperforming all other issuers in the region.

APAC - Top 5 Revenue Generating Issuances v Issuers

Following a banner year in 2022, corporate debt continued its solid revenue performance in Q1 2023 as rising interest rates and inflation persist. However, in the wake of several high-profile bank collapses, future central bank rate hikes have been questioned prompting some to speculate rate cuts towards the end of 2023, the impact of which remains to be seen.