New issue volume for March closed at approximately $35 billion, which was the highest number since October 2012’s $42 billion issuance. Most of the volume was driven by refinancings, which, year-to-date, have accounted for 3/4 of all bond issuance. The $3.5 billion issued last week was tiny compared to the $17 billion issued the previous week, though it is important to keep in mind that the week of Easter was likely going to be quiet.
On Monday the Bloomberg BB rated Index reached a record new low of 4.58%. Two of the seven USD bonds issued last week were Add-ons to existing bond issuances, which shows that issuers are coming back for more given the very low rates. The single B index, though, did not tighten much.
The market remains selective of the transactions and less than 20% have been rated CCC or below. Also, last week had the second aborted bond for the year when SMART Technologies pulled its $200 million 7-year bond. The notes received ratings of Caa1/B- and were intended to yield 12%, but investors were not receptive.
The tight steady supply portrayed by the issuance volume has kept prices relatively stable throughout the year despite the heavy fund outflows, but in a recovering economy investors drive the market, not issuers. As the economy recovers and quantitative easing is reduced, investors will accelerate their move into equities and away from bonds. In the meantime, the popular high yield bond ETFs will continue to yield 5-6% in interest income, but in the medium to long term the bond price drops will eat away part of that income.
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