Suppliers continue to crowd the market
Last week ended on a similar mood as the previous week. Issuers continued to supply bonds to the hungry market. High yield issuance ended the week 26% higher than the previous week. The total issuance for the week was $6.3 billion—$1.3 million up from the $5.0 billion issuance we saw the week before.
The year-to-date issuance has been $32.6 billion, much lower than the $40.5 billion issuance over the same period in 2013. Bond prices (JNK) were down slightly as the ten-year U.S. Treasury yield gained traction from the previous week. However, the prices for HYG increased as investors continued to favor the high yield bond market.
The Bank of America Merrill Lynch US High Yield Master II (BAML) Index effective yield was 30 basis points up from the previous week, which ended at 5.91%.
Refinancing and general corporate deals kept the market busy
Eleven issuers came to market with an average ticket size of $570 million. Seven of the deals were refinancing, as issuers continued to take advantage of the bullish market conditions in the bond market. All bonds issued were rated BB- or lower, with most in the single B area. Most deals priced within the initial price talk, showing that investors are buying anything thrown at them.
The largest deal during the week was from Chrysler Group, which issued $2.7 billion second-lien notes to repay specific pension amounts outstanding. The quantum of deals reflects the issuer’s faith in the high yield bond market. However, investors need to pay attention to the price and structure of the deals amid the expected increase in interest rates as the Fed continues to taper its asset purchases.
The pipeline ahead indicates higher M&A
Of the 17 high yield bond (JNK) deals announced for the next week, 12 were for M&A (mergers and acquisitions) and LBO (leveraged buyouts) and five were refinancing.
While high yield bond issuance remained attractive during the week, leveraged loans remained silent. We’ll discuss this in more detail in the next part of this series.