Issuance of junk bonds slides
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Global issuance of speculative-grade or “junk” bonds last month fell to its lowest level since November 2002 as issues of all new bonds fell to lows for the year, according to data from Dealogic.
The figures come as a spate of fresh takeover activity in Europe and the US on Monday – and the expectation of more to come – raises concerns about the supply of bonds needed to fund the deals and what impact this will have on existing debt.
“This extent of takeover activity has not been seen since 2000 and the dotcom bubble, and highlights the growing presence of event risk in the market,” said Gary Jenkins, credit strategist at Deutsche Bank in London.
According to Dealogic, total debt capital markets volume stood at $356.9bn in October, and junk issuance, which is concentrated in Europe and the US, came to $7.5bn, down sharply from an average of $14.9bn per month this year and $19bn in September.
Falling stock markets and rising government bond yields put corporate bonds under pressure last month.
Kingman Penniman of KDP Investment Advisers, a US high-yield consultancy, said the market had been rattled last month by greater expectations of higher interest rates and Delphi’s bankruptcy, amid a general sense that risk was being repriced.
A total of $1.7bn worth of expected US junk issuance was pulled last month, according to KDP.
“Everyone went to the sidelines last month to wait for the market to reprice, and then they’ll come back in,” he said, noting that much of the withdrawn bond issues instead found strong demand in the loan market.
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