Investment Insights

Hot or the Top? USD HY markets enjoy bumper issuance

Hot or the Top? USD HY markets enjoy bumper issuance

George Flynn, Senior High Yield Bond Analyst

Mark Remington, Global High Yield Bond Fund Manager​ ​

There has been huge growth in the US High Yield market in 2024. Recently there has been a bias for weaker companies and bond structures. However, performance has been robust and there has been value in credit selection.

New issue supply is up some +89% in gross terms and +51% in net terms (issuance less redemptions) YoY for the first 9 months of 2024. The average performance 10 days after issue has been positive for most of 2024 and demand has easily met supply as the FED and other central banks have started cutting rates.

Further, syndicate desks have been able to release deals with increasingly aggressive terms. We were lucky enough to have @LisaGundy from Moodys in to give us an update on all things bond covenants.

Covenants are best thought of as rules that stop issuers taking actions that result in a weaker lender position for investors.

There has been a general decline in covenant quality, and this was expected to worsen in Q4 of 2024 with more aggressive deal terms being floated. See Below – expect higher (worse) scores in Q2 ‘24

Not only has there been an increase in aggressive terms we are seeing more lower rated single B deals. The canary in the coal mine has to be the emergence of a PIK toggle deal – essentially a payment in kind structure – where investors receive notional instead of cash as a coupon.

Overall, the primary market continues to feel well supported and we are seeing new first time issuers bring more diversity to the high yield bond market. However, aggressive deal terms and structures are a reminder to be selective in pricing risk.

Single B Issuance grew in September 24 and this looks to be continuing.

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