Issuance in the U.S. high-yield bond market is tracking at its busiest pace for any June on record, with $23.88 billion priced through June 12, according to LCD. The impressive figure follows a strong lead-in from May, which wrapped with a record-setting total for that month, and the third-highest issuance ever for April. Year-to-date volume was $176.8 billion at the close on June 12, up 56% year over year, according to LCD.
The Federal Reserve’s April 9 announcement that it would be including coronavirus-era fallen angel credits in its corporate liquidity facilities has helped to settle market jitters, and pump up issuance.
Moreover, the month-to-date volume through June 12 was the second-busiest pace on record across all months, preceded only by August 2010, with $28.47 billion printed through the same period.
High-yield issuers have been drawn in by improved borrowing conditions as yields and spreads retreated from eye-popping levels observed at the start of the coronavirus-related market volatility, in March. Per the S&P U.S. High Yield Corporate Bond Index, the average yield to worst ebbed below 7% late last month, and reached a three-month low of 5.90% on Monday, June 8, down from double-digit figures in early March. The OAS readings for the index tightened to T+503 on June 8, or less than half the peak distressed-level reading at T+1,020 on March 23, the index shows.
Investor cash inflows into the asset class have remained robust this month, as well, according to funds reporting weekly to Lipper. Retail funds investing in U.S. high-yield bonds posted an inflow of $5.1 billion during the week ended June 10, marking the 11th consecutive week of inflows, for a total of $46.4 billion since late March. The average inflow over the last four weeks, at $4.7 billion, matches the prior all-time peak witnessed for the period to April 22, 2020, amid the Fed’s extraordinary liquidity-support rollouts.
This backdrop, alongside strong risk-on sentiment, has provided a window of opportunity for companies to prioritize addressing existing debt loads. Through June 11, nearly 98% of month-to-date volume was placed to refinance existing bonds or term loan debt, the most for a single month since August 2008, when 100% of a slim $1.7 billion in supply was placed to refinance debt. A generous allotment for refinancing exercises was also witnessed in September 2019, with a 94.8% share of that month's $30.8 billion in volume. June's carve-out includes sizeable deals completed for Altice, CITGO, Royal Caribbean, Level 3 Financing and Univision.
This analysis was written by Jakema Lewis, who covers the U.S. high-yield bond market for LCD.