Junk Sales Hit 21-Month High as Issuers Lock In Lower Rates

(Bloomberg) -- High-yield bond sales surged this month to the highest since September 2017 as borrowers rushed to lock in lower borrowing costs. Fund inflows chasing record returns and central bank easing make for an attractive funding environment.

Issuance jumped to almost $28 billion this month, with another $525 million deal that may price today, according to data compiled by Bloomberg. It’s the second straight month that new issue volume has topped $26 billion.

This year’s total U.S. junk bond issuance volume of about $130 billion is 18% higher year-on-year, according to data compiled by Bloomberg. JPMorgan analysts Peter Acciavatti and Nelson Jantzen, who upped their supply forecast earlier this year, expect about $105 billion more in new issue supply in the second half.

Refinancing is likely to be a big driver of that. Some $206 billion of U.S. dollar-denominated bonds are potential refinancing candidates in the second half, according to Bloomberg Intelligence analyst Stephen Flynn.

Junk Sales Hit 21-Month High as Issuers Lock In Lower Rates

A draw for issuers is the fact that average spreads on U.S. high-yields bonds have compressed by almost 150 basis points since the start of the year, according to Bloomberg Barclays data. The rates rally fueled by dovish Fed talk helped push average yields below 6% this month for the first time since April 2018.

Junk Sales Hit 21-Month High as Issuers Lock In Lower Rates

The surge in issuance coincides with accelerating flows into U.S. high-yield funds. Investors poured $3.1 billion of cash into the asset class for the week ended June 26 -- the largest since February -- according to data from Refinitiv’s Lipper.

Investor confidence is buoyed by year-to-date returns nearing 10% -- the best since 2009. This followed a 2.15% gain in June, the biggest monthly return since January, according to Bloomberg Barclays data. JPMorgan analysts predict total returns could reach as much as 12% for 2019 -- the strongest performance for high-yield in three years.

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