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Issuers sit on the sidelines given pullback before Fed meeting

US High Yield Bond Market Issuance 2013-06-17Enlarge GraphThe high yield bond issuance remained at depressed levels as investor demand remained mute ahead of the FOMC meeting.

Issuance volume is a good gauge of the sentiment of the market. In a very simplistic manner, when volumes are strong and steady, both investors and issuers are happy, but when volumes drop it means investors are skeptical and issuers are waiting for better times.
While investors expect rates to remain unchanged, the post-meeting statements are expected to shed some light on the direction of the stimulus program of the Fed. A faster timeline than expected means that rates will increase faster and hurt bond prices, hence the market would start to discount that possibility; bond yields would increase and prices would drop. An issuer would like to be caught issuing at a time when yields are spiking up.

FOMC anticipation spoofs volumes
For the third week in a row, high yield issuance remained below $2.5 billion, far from the volumes above $10 billion observed just a few weeks back. Several issuers are delaying issues and waiting on the sidelines given the investor reluctance to invest in bonds ahead of the FOMC meeting. The Federal Open Market Committee is in charge of setting interest rates at the Federal Reserve.
An additional proof of the investor anticipation has been the huge cash outflows from mutual funds, which totaled over $3 billion and moved the inflows to date further into negative territory.
Last week had a total 9 tranches pricing, amounting to roughly $2.2 billion. The volume is comparable to that of last week and is likely that this present week will close even lower as issuers pull back deals given demand drop ahead of the meeting.

In the short-term, high yield will be a painful place to play in given the strong downtrend and high volatility.