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Riskier US corporate debt regained some of its footing on Tuesday, with a deluge of bond sales expected over the coming days despite the weight of falling oil prices.
At least 10 bond sales from speculatively rated groups — companies deemed riskier than their investment-grade counterparts by the major rating agencies — were being marketed in the US on Tuesday or set for marketing roadshows later this week.
The uptick in activity follows a volatile week for junk bonds amid declining oil prices. Since the end of April, Brent crude — the global oil benchmark — has declined nearly 6 per cent. It is off roughly 15 per cent from its January high. The energy sector is a key component of the junk bond market, representing 14 per cent of Bank of America Merrill Lynch’s high-yield US corporate bond index.
The sales include a $700m bond offering from hospital group Community Health Systems, a $500m deal from chemical company Chemours and a $1bn bond sale from Fortescue, the Australian iron ore company. In total, the deals — including a $125m bond offering from independent oil and gas company Resolute Energy — were expected to raise more than $4bn from investors, according to FT calculations.
While sales of high-yield corporate debt in the US are up more than 30 per cent from a year earlier — crossing the $100bn mark last week — they remain below the pace in 2013, 2014 and 2015, according to Dealogic.
Premiums investors demand to hold the debt have slid from recent highs, with the so-called spread — the difference in yield on a high-yield corporate bond and that on a US Treasury of a similar maturity — falling 36 points from a March peak to 380 basis points on Monday.
“Aside from weakness in commodity related [bond] issues, the market is relatively stable,” said David Daigle, a portfolio manager with Capital Group. “A stable Treasury market, supportive equity market and…volatility that remains relatively well-behaved have created a great backdrop for high yield debt.”