OREANDA-NEWS. Fitch Ratings says that rising US dollar issuance by European banks helped lift overall supply from EMEA financials by 8% yoy in 8M15 as borrowers pounced on the attractive funding cost advantage in the US credit markets relative to Europe.

The share of Yankee issuance rose 6pp to 28% from 2014 as the euro-dollar cross currency basis swap spread fell to its lowest level in over two years. Fitch believes an important cause of the latter is the strong influx of US corporates issuing in euros and then swapping the proceeds into US dollars - the reverse of the flow seen for financial entities.

Active bank issuers of three- and five-year bonds have, in certain cases, been able to achieve relative funding cost savings of over 30bp compared to direct issuance in euros. Savings were still compelling despite the volatility and global growth concerns at the time.

Issuance of additional Tier 1 (AT1) bonds resumed in August, after a July hiatus in which volatility prompted issuers to remain on the sidelines. Underscoring the improvement in market sentiment following earlier bouts of volatility, Fitch recently rated forthcoming debut AT1 bonds from ABN AMRO (BB+EXP) and Intesa Sanpaolo S.p.A. (BB-EXP). Issuance in the year to date now runs at 80% of the total in 2014 and is on course to set a new record.

Covered bond issuance recovered as their proportion of new issuance grew by 5pp to 36% in 8M15 on 2014. A combination of demand support from ECB bond buying and greater market volatility provided the conditions for borrowers to increase supply.

The rise comes after two straight years of declines in which junior bonds achieved greater attention in bank capital building as part of the shift from 'bail-out' to 'bail-in'. Junior bond issuance, meanwhile, fell 6pp to 12% of issuance, reflecting wider subordinated bond spreads.

Negative rating actions on a slew of EU banks, reflecting the removal of sovereign support, have set downgrade volume on course to reach the highest level since 2012. Nevertheless, the ratio of upgrades-to-downgrades has continued its gradual improvement from a low level, reaching 0.4x, while spreads continue their tightening trend as investors target juicier returns.

More information is in the report "EMEA Financials Bond Market Monitor", available at www.fitchratings.com.