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US high-yield issuance blasts past prior years to set new record

U.S. high-yield issuance reached $345.6 billion for 2020 through Oct. 7, marking a new annual record for the asset class, according to LCD. The figure topples 2012's $344.8 billion from its long-standing position in the top slot. Year-to-date volume is currently outpacing 2019's full-year sum of $272.6 billion by 21%.

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Helping to cement 2020's new print sum in the top slot were blockbuster volumes observed May-August, with each month setting record-high amounts for those respective calendar-month periods, after the Federal Reserve in March and April rolled out liquidity facilities to support the corporate-bond marketplace. (September volume, at $47.1 billion, was just shy of the September record of $47.7 billion, in 2013. April's total was the third highest for that calendar-month period.)

Demand for the high-yield paper gained momentum at breakneck paces following a near-blackout month of issuance in March, spurred by heightened coronavirus-induced volatility. In turn, credit strategists have begun revising estimates for full-year volumes to $400 billion on the high end, from earlier projections of $185 billion-$275 billion.

The Fed's indefinite policy accommodation and tightening risk premiums have enticed companies to tap the market in droves to lengthen their debt-maturity profiles at historically attractive costs. For reference, year-to-date, the average new-issue yield was 6.12% through Oct. 7, shedding 25 basis points from the 6.60% average for 2019 and setting 2020 on track to set a new record-low for borrowing costs as well. In September, the average yield at issuance was 5.29%, down about a full percentage point versus the average for all of May.

Refinancing activity has ramped up in tandem. September wrapped with 82.7% of the month's volume earmarked repay existing debt, a noticeable spike from April's slim 29% for refi-driven bond prints, when companies opted instead to focus on shoring up liquidity to stay afloat amidst coronavirus uncertainty and lockdown orders.

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