The Bond Market Has Frozen: For The First Month Since 2008, Not A Single Junk Bond Prices

Today, the FT picks up on the fact that the junk bond market - whether in loans or bonds - has frozen up, and reported that US credit markets have "ground to a halt" with fund managers refusing to fund buyouts and investors shunning high-yield bond sales as rising interest rates and market volatility weigh on sentiment (ironically it is the rising rates that assure lower rates as financial conditions tighten and the Fed is forced to resume easing in the coming year, that has been a major hurdle to floating-rate loan demand as the same higher rates that pushed demand for paper to all-time highs are set to reverse).

Meanwhile, things are even worse in the bond market, where not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month according to the FT. If that freeze continues until the end of the month, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic.

Separately, as we already reported, the FT notes that in the loan market at least two deals - including the Barclays/Wells bridge loan - were postponed and could be the first of several transactions pulled from the market this year, bankers and investors said, as mutual funds and managers of collateralized loan obligations — the largest buyer by far in the leveraged loan sector — wait out the uncertainty.

“This is clearly more than year-end jitters,” said Guy LeBas, a strategist at Janney Montgomery Scott. “What we’re seeing now is pretty typical for end-of-credit-cycle behavior.”

A prolonged period of low interest rates since the financial crisis a decade ago has seen companies binge on cheap debt. However, as financial conditions have tightened, the high level of corporate leverage has raised widespread concern among regulators, analysts and investors.

In the loan market, it's not a total disaster just yet, because even as prices have slumped over the past two months, banks that committed to finance highly leveraged buyouts - including JPMorgan Chase and Goldman Sachs -have offered loans at substantial discounts to entice investors. As the chart below shows, the average new issue yield by month has exploded to the highest in years, with CCC-rated issuers forced to pay the most in 7 years to round up investor demand.

View single page >> |

Disclosure: Copyright ©2009-2018 ZeroHedge.com/ABC Media, LTD; All Rights Reserved. Zero Hedge is intended for Mature Audiences. Familiarize yourself with our legal and use policies every time ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.