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European Chart of the Week: HY bond issuance rebounds in June, loans start to pick up

European Chart of the Week: 10th July

After a quiet period in April and May, with very limited deal flow, activity picked up in the institutional leveraged loan and high yield bond primary markets in June as investor sentiment improved, the secondary markets continued to move higher and countries took steps to emerge from coronavirus-related social restrictions. Despite the increased activity in the latter part of the quarter, 2Q20 ended with a deal flow down dramatically from 1Q20 levels. Companies also had to pay up relative to pre-COVID benchmarks for accessing the leveraged debt markets.

European companies increasingly tapped the high yield bond market in June, with issuance hitting its highest monthly level since November 2017. The EUR 15.9 bn of issuance in June, took the 1H20 total to EUR 41.1 bn, an 8% increase over the same period last year. On a quarterly basis, the EUR 20.2bn of deal flow in 2Q20 lagged the EUR 20.9bn recorded in 1Q20.

The institutional leveraged loan market started to pick up in the latter part of the quarter, with issuance in June amounting to EUR 8.6bn. This left the 2Q20 total at EUR 13bn, well below the EUR 42.6bn of deal flow posted in 1Q20.

Higher secondary prices have also boosted investor sentiment recently. High yield bond secondary prices climbed in June, helping euro-denominated bonds post a total return of 1.87%, according to ICE/BofA, with lower-rated credits outperforming. Some of the previously beaten-down sectors most impacted by COVID-19 like retail (3.28%) and leisure (2.95%) also outperformed the wider index in June.

Overall in 1H20, euro high yield bonds lost 5.1%, despite rebounding strongly to gain 11.3% in 2Q20, as tumbling values in March due to the spread of COVID-19 took their toll on first-half returns. The euro index ended June yielding 4.55%, with BB’s at 3.33%, single-B’s at 5.83%, and CCC’s at 11.19%.

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