Why the issuance for high-yield bonds was dropped

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Last week’s high-yield and leveraged loan market update

After rising sharply the previous week, the issuance for the high-yield bonds dropped to $8.6 billion for the week ending on May 16 compared to $10 billion for the week ending on May 9. The number of issuers also dropped to 16 from 19 the week before.

The lower issuance was despite the fall in the average coupon to 5.4% from 6%. The talks of the possible easing of monetary policy in Europe and rising tensions in Ukraine could have been the reasons behind the drop in yields. It is worth noting that the Treasury yields across maturities also fell last week.

Treasury yield curve 2014-05-20

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AES Corp.(AES), a fortune 200 electricity generation and distribution company, issued floating rate notes (or FRNs) during the week. This was the first time FRNs were issued after Chesapeake Energy Corporation (CHK) issued $1.5 billion FRNs in April.
Year-to-date volume came in at $136 billion compared to $148 billion for the same period in the previous year. The market saw higher inflows at $472 million against $386 million for the previous week. The year-to-date inflows stood at $4.2 billion because the Fed’s peaceful monetary policy has acted as a breather for the bond market (BND).

Major high-yield bond ETFs such as the iShares iBoxx $ High Yield Corporate Bd (HYG) and the SPDR Barclays High Yield Bond (JNK) posted a minuscule price increase despite the drop in yields.

The leveraged loan market saw the issuance of $13.2 billion in 23 deals. The market saw an outflow of $259 million during the week compared to an inflow of $69 million for the prior week. After clocking an inflow of $69 million for the previous week (after three weeks of outflow), the market saw the flows turning red again with an outflow of $259 million. On a year-to-date basis, the leveraged loans market saw inflows of $5.8 billion.

While the picture for the corporate bond market doesn’t sound alarming, investors should take caution while investing in the corporate debt market. To learn more, continue reading the next part of the series.

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