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Federal Reserve sparks record high yield bond issuance
This month is on track to be the busiest June on record for the issuance of dollar-denominated high yield or ‘junk’ bonds, with almost $24 billion of bonds priced by the middle of the month.
This follows a record level of issuance in May, as corporate borrowers continue to flood the market after the US Federal Reserve admitted that any increase in interest rates was ‘years away’ and that it would include high yield bonds in its credit buying programme to help ease liquidity fears in markets.
Up to mid-June, issuance for the year to date was up more than 50% on 2019 at more than $175 billion despite the poor economic outlook
for the global economy for the second half of this year.
Meanwhile, with little to no yield on government bonds or stocks, big investors are only too happy to soak up as much paper as companies can issue, pushing prices up and yields to record lows even though high yield or ‘junk’ debt is the lowest investment grade and carries the highest risk of default.
It isn’t just US and foreign institutions attracted to this high-grade issuance. According to Lipper, domestic retail funds investing in US high-yield bonds recorded more than $5 billion of inflows in the first week of June, the 11th successive week of inflows.