High-yield chart of the day
Email 
Print
Bespoke Investment Group serves up this chart:
It seems as though while the high-grade bond market has responded to increased demand with massive amounts of new issuance, the high-yield market — which is still pretty much closed to new issuance — has responded with lower spreads. That’s a much healthier response: it means that writers of credit protection might have now emerged from technical insolvency, while total leverage continues to fall as debts are paid down and little new debt is issued.
High-yield markets were always going to take a while to come back in vogue, after blowing up twice (the first blow-up was the implosion of Drexel in the late 1980s). But the fact that there’s still demand for these instruments, as indicated by the chart, just goes to show how short memories are in this market.
Comments RSSPost Your Comment
Why shouldn’t there be demand for high-yield bonds?. It’s all a matter of promised return vs. perceived risk.
Those who bet that perceived risk was way too high have been rewarded handily as that contraction of spreads in your graphs reflecta an equally impressive rally in bond prices.
And let’s not forget that all along the way these bonds were accruing interest also.
Is the risk/reward relationship as enticing at this point? No. But there’s still room to run. I’m not buying much here, but I’m not selling either!
High yield bond issuance for the first half of 2009 was $59 bn. Annualized, that is a bit higher than the average annual issuance of the past five years. Not stunning, of course, but I would not characterize it as ‘closed.’ The leveraged loan is another story.