US Chart of the Week: 10th July
High yield bond issuance exploded in 2Q20 as companies sought additional liquidity to carry them through ongoing market uncertainty stemming from the coronavirus (COVID-19) pandemic. June high yield deal flow of USD 63.7bn set a new monthly record, topping the previous high set in September 2013 and pushed 2Q20 volumes to USD 150bn. The USD 225bn issued in 1H20 is an 85% improvement over the 1H19 figure. Since the Federal Reserve announced that it would buy corporate bonds and high yield ETFs, investors have poured money into the asset class. Borrowers have taken advantage of the increased demand to raise new funding.
A broad cross-section of companies accessed the high yield market in June, including those in hard-hit sectors such as transportation (USD 9.4bn), energy (USD 7.84bn) and leisure (USD 7.75bn), as well as less impacted sectors like media (USD 6bn). Over 55% of HY bonds issued in June were to refinance existing debt, with an additional 12% allocated to general corporate purposes.
With the Federal Reserve cutting interest rates sharply in March, investors have preferred fixed-rate debt instruments in recent months, with institutional loans making up a smaller slice of total debt issuance in the second quarter. In 1Q20, institutional loan issuance totaled USD 133bn (excluding repricings) compared to just USD 75bn issued in the high yield market. This trend was flipped in 2Q when the USD 150bn in high yield bond volume eclipsed the USD 59bn of deal flow seen in the institutional loan market.
Pricing in the high yield bond market widened significantly in 2Q20, however, June saw levels tighten from recent highs. Yields increased to 6.88% in 2Q20 from 5.26% in the first quarter, with pricing in June tightening to 6.44%. Yields on single-B bonds averaged 6.57% in June, down from 7.77% in May, while BB bonds saw yields decline to 6.35% from 6.61%.
