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Fixed income weekly dose of realism, August 19–23

Part 4
Fixed income weekly dose of realism, August 19–23 (Part 4 of 5)

High yield issuance ghost town ahead after FOMC minutes

With the increased pressure of imminent tapering beginning in September, both issuers and investors avoided the market

Last week, there were no new deals priced or even launched. Ahead of the release of the FOMC (Federal Open Market Committee) meeting minutes, no issuers dared to come to market. After the spike in interest rates post-release, which led the ten-year Treasury close to 2.9%, issuers were less likely to issue, as the window of opportunity may have closed.

High Yield Bond Market - HYG vs JNK 2013-08-28Enlarge Graph

The prior week had priced less than $5 billion, which up until then was the lowest volumes in five weeks. Deal size was also much lower, with the total 15 deals priced averaging close to $300 million—much lower than the $400+ million average from the prior weeks.

Overall, August had started strong after pent-up demand sustained a strong issuance throughout July and early August due to the severe slowdown in June. The June interest rates correction moved ten-year Treasuries from between 2.2% and 2.3% up to between 2.5% and 2.6%. Since then, Treasuries continued creeping up to their current level close to 2.9%.

The current week volume is likely to remain mute given the upcoming Labor Day weekend. Plus, issuers remain in a wait-and-see pattern to check if rates will pull back further on weaker macroeconomic data. The weak housing data last Friday moved rates back slightly, though given that the September FOMC meeting is right around the corner, a further pullback is unlikely.

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