Borrowers still have the upper hand just as companies including Charter Communications prepare to finance acquisitions

Bloomberg
New York


Don’t call an end to the global junk-bond binge just yet.
While sales of the securities are wrapping up their slowest month of 2015, the extra yield investors demand to own the debt instead of Treasuries dropped to the lowest level in more than a year. That means borrowers still have the upper hand just as companies including Charter Communications prepare to finance acquisitions.
“It’s still a borrower’s market,” said Greg Hopper, head of global high-yield strategy at Aberdeen Asset Management, which manages about $504bn. “We haven’t seen the death knell for the market. There is demand, a recovering economy has proved to be good for high yield.”
With the Federal Reserve still holding its interest-rate benchmark near zero and the European Central Bank continuing efforts to boost its economy, investors are showing little urgency to retreat from one of the biggest beneficiaries of central-bank stimulus. They have few options for yield elsewhere.
Speculative-grade borrowers worldwide have issued $36.3bn of debt in May, down from a monthly average of $59bn this year and the least since $16.1bn was sold in December, according to data compiled by Bloomberg. That slowed the sales for the year to the least since 2012, with $267.3bn of offerings through Thursday.
High-yield companies in the US issued $30.3bn of bonds in May, compared with $49bn last month. Sales in Europe also slowed, with high-yield companies issuing €3.08bn ($3.4bn) of notes in May, less than a fifth of April’s sales, Bloomberg data show.
May’s slowdown comes as global bond markets reeled, pushing up the yield on the 10-year Treasury note, a benchmark for everything from corporate debt to mortgages, to 2.11%, about 50 basis points from the low of the year.
“Concerns over US rates rises and Greece have rippled through the markets and slowed issuance,” said Martin Reeves, the London-based head of high-yield at Legal & General Investment Management, which oversees more than $700bn. “As the market gets more comfortable with the outlook, underwriters will be able to give better guidance to issuers.”
Global high-yield bonds were spared some of the turmoil seen in other debt markets, with average yields on the securities falling to 6.3%, about the lowest since November, according to Bank of America Merrill Lynch Index data. Yields on the debt started the year at a more than two-year high of 7.35%.
The securities have returned 4.79% this year, almost five times that of gains in investment-grade notes.
“The volatility of the past few weeks has caused a number of issuers to delay certain planned issuance, but it seems like the high-yield pipeline will continue to be healthy,” said Colm D’Rosario, a money manager in London at Pioneer Investment Management Ltd, which oversees about $230bn.
Charter said in a regulatory filing that as much as $27.3bn of new debt may be needed for its takeover of Time Warner Cable and for the purchase of Bright House Networks, a smaller company that the cable operator had previously agreed to buy.
The buying continues even as the Fed gets closer to raising interests rates for the first time since 2006 later this year, a move that Chair Janet Yellen said would be followed by a gradual pace of tightening.
“As we get closer to a Fed rate increase, high-yield company balance sheets are much healthier than they were, default rates aren’t spiking any time soon,” said Jennifer Vail, head of fixed-income research in Portland, Oregon, at US Bank Wealth Management. “There is a lot of cushion.”