Why high yield debt is staging a comeback in the capital markets


Nov. 27 2019, Updated 2:24 p.m. ET

Deals and flows analysis in the high yield bond markets

Issuance in high yield or junk bond (JNK) markets has staged a recovery over the past three weeks. Market conditions strengthened and bullish economic data turned things around for junk bond (HYG) issuers.

Issuers took advantage of favorable market conditions to issue $9.3 billion in new debt across ten transactions in the week ending November 7. This was up almost 37% from $6.8 billion in notes sold in the week ending October 31.

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Last week brought the total U.S. dollar issuance to $290 billion in 2014 year-to-date (or YTD). This is down about 0.6% from the $292 billion recorded in the corresponding period of 2013. The number of transactions doubled, from 9 to 18, week-on-week, as more issuers found primary market conditions to their liking.

Refinancing deals are more feasible now

The purpose behind most deals last week was to refinance older debt. Refinancing-related issues accounted for nine out of the 18 transactions in the week. These included General Motors’ (GM) three-part $2.5 billion senior notes sale.

Refinancing deals had all but dried up until recently. Market yields spiked on overseas tensions and international growth worries. But the recent fall in yields had turned things around in the junk bonds (PHB) space. This made it advantageous for issuers to pay off older debt by issuing lower-cost financing.

Besides the refinancing-related deals, there were four deals for financing acquisitions and five for general corporate purposes. DISH Network’s (DISH) $2 billion 10-year notes issue was the largest sale. The proceeds of this deal will go towards general corporate purposes. Acquisition-related transactions included the $175 million senior add-on notes that Avis Budget (CAR) issued.

GM is part of the iShares Core S&P 500 ETF (IVV). We’ll analyze these deals and pricing trends in detail in the next section.


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