S&P Global (SPGI) and Moody's (MCO) face weak debt issuance in Q3, as expected following sharp increases in interest rates and tough year-over-year comparisons, Morgan Stanley said in a Wednesday note.

Aggregate debt issuance fell 6% year over year in Q3, according to the note.

Morgan Stanley expects both companies to temper Ratings revenue guidance. S&P Global is seen lowering its range to 5% to 7% from 5% to 8%, while Moody's is expected to update its outlook to mid-single-digit to high-single-digit growth from high-single-digit growth.

Morgan Stanley lowered its third-quarter Ratings revenue growth estimates for both companies to a 1% decline from 5% growth.

However, the low end of overall guidance should still be achievable for both despite the lower Ratings outlooks, Morgan Stanley analysts said.

In the long term, the analysts remain positive on the outlook for debt issuance due to a projected continued recovery in M&A, capital spending on AI infrastructure and data centers, healthy refinancing walls, and stable economic growth.

The analysts also reduced their Q3 EPS estimates by 1% for S&P Global and 2% for Moody's.

The Q3 financial results for S&P Global and Moody's are slated for Oct. 27 and Oct. 21, respectively.

Morgan Stanley maintained S&P Global's stock rating at overweight and lowered the price target to $477 from $525.

The brokerage also kept Moody's stock rating at equal-weight and reduced the price target to $470 from $512.

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