The HY market has fully embraced the FOMC release and the benign October CPI report as HY continues to perform while new issue activity remains elevated versus last year’s year-to-date volume comparison.
The year-to-date performance of the HY Index now stands at just over 8.5%, with CCCs outperforming the broader index with a 12.5% gain. High yield issuance stands at $160bn year-to-date versus $$100bn ytd 2022.
Transactions over the past 3 weeks include Bombardier raising $750mm at 8.75% and Venture Global re-opening two outstanding issues for $1bn in incremental proceeds. Outfront Media came to market for $450mm at a coupon of 7.375%, and Smyrna, the cement company, raised $1.1bn of an 8-year at 8.875%. Sealed Air, Axalta Coating Systems, and Nova Chemicals have each tapped the HY market as yields have retreated on the heels of the Fed. Earlier this month, GOEASY Ltd(BB-) raised $550 million in a 5-year note offering.
Also earlier this month, American Airlines, LGI Homes, and Veritiv Corp each tapped the HY bond market: American Airlines: $1bn senior secured offering of 5NC2 notes at 8.5%; LGI Homes: $400mm 7y notes at 8.75%; Veritiv Corp: $700mm 7NC3 at 10.5%.
As the rhetoric among economists has shifted from “if” to “when” the FOMC will cut rates and as the equity market has rallied over the past two weeks, the strength in the HY market has been notable, with BB yields at 7.25% and B yields at 8.75%.
On an additional positive note with respect to overall HY market technicals at the beginning of the month, Ford was upgraded last month by S&P to BBB- from BB+, providing the company with its second investment grade rating after Fitch upgraded the auto company earlier this Fall. This upgrade further reduced the size of the HY market just as demand is picking up on the heels of the FOMC meeting. Ford’s $2.75bn two-tranche deal of 5- and 10-year notes allowed the Company to fully capitalize on both the upgrade to investment grade and the uptick in overall market sentiment in reaction to the FOMC’s release.
HY Market Observations:
-As we continue to experience tremendous market volatility, market participants cite that 25% of HY market matures in 2025-2026. That said, very light 2024 maturities does give issuers some time to pre-fund the market’s upcoming maturity towers by taking advantage of any positive swings in overall market sentiment like the current one. The recent market bounce is likely to cause the HY new issue calendar to continue to be busy for the remainder of the year.
-JNK, one of the largest HY ETFs, opened 2023 at $90+/- and today hovers in the $92 range, while the 2023 high was $94.8 in early February. The 2023 low was $87.79 on 10/23/23.