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Junk Bonds Topple Monthly Sales Record in ‘Party Like No Other’

Caleb Mutua

(Bloomberg) -- Companies shoring up cash to survive the global pandemic raised funds in the U.S. high-yield market at the fastest monthly pace ever.

Junk issuers have already sold $46.7 billion of bonds in June, surpassing the prior monthly record of $46.4 billion in September 2013, according to data compiled by Bloomberg. Today’s $500 million deal from Navios Logistics pushed the year-to-date volume to $199 billion, up about 66.5% on the same period a year ago, the data show.

Companies have rushed to build cash war chests to see them through the disruption amid the economic slump caused by the pandemic, which triggered a slew of bankruptcies. The Federal Reserve plans to purchase some types of high-yield bonds to boost liquidity spurred by record demand from investors.

“You get an invitation to a party from the Fed, Treasury and Congress -- they offer to pick you up, take you home and bring you breakfast in bed the next morning,” said Bill Zox, a high-yield bond portfolio manager at Diamond Hill Capital Management.

“You know it is going to be a party like no other,” said Zox, whose firm oversees more than $20 billion in assets.

Read more: Fear is all but dead in credit markets backed by Fed

Strong demand and low absolute borrowing costs encourage issuers to tap the high-yield market despite challenging economic data and renewed virus flare-ups. Risk sentiment has shifted toward an “optimistic recovery path,” according to Steven Oh, global head of credit and fixed-income at PineBridge Investments, which manages about $100 billion in assets.

High-yield issuance will slow significantly in the second half of 2020, ending the year at $280 billion to $300 billion, according to Srikanth Sankaran, head of U.S. and Europe corporate credit strategy at Morgan Stanley.

“Issuers have built up significant liquidity buffers,” said Sankaran. “Companies will focus on balance sheet repair and bringing down leverage,” he said.

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