Waves of deals in August and thus far in September signal wide-open funding markets ahead of the November elections, after a string of key data releases — including a mild CPI update on Sept. 11 — cemented expectations for a September rate cut. In August, high-yield borrowers took advantage of firm markets to print paper at a steady cadence ahead of the typical late summer lull. The $18.1 billion of issuance was the most for the month since 2021’s $34.3 billion. Issuance for the year advanced to $198.7 billion through eight months, up 79% from the 2023 pace ($111 billion) and up 155% from 2022 ($78 billion).
While August was the lightest month yet this year, the lazier days of summer were short-lived, as issuers are now swarming from the sidelines to pitch deals. The first week post the Labor Day break featured $7.6 billion of deals, with another $11.5 billion hitting the tape in the second week of September.
The slowdown in August extended to loans. Total leveraged finance volume was $25.38 billion in August, including an anemic $7.33 billion of institutional loan issuance. Bond volume outpaced loan volume for the first time since December 2023.
For the high-yield bond segment, though, traditional issuance patterns continue to reform after anomalous outcomes in 2022 and 2023 through the Fed’s rate tightening arc. The volume of senior notes issuance in August ($9.7 billion) outpaced secured bond placements ($8.4 billion) for a sixth straight month, and the share for senior issuance YTD (55% through August) compares with less than 40% for all last year, a record-low annual share.
New-issue yields receded in August, shaving off 15 bps month-to-month, to an average cost of 7.88%. The metric had widened 37 bps in July, to 8.03%, from June’s 7.66%.
No bonds with CCC ratings were issued in August, the first shutout for the ratings category since last November. The drought broke quickly in September though, as Shearer’s Foods priced an upsized $450 million print of CCC+/Caa2 senior notes to back a dividend payout. Triple-C deals represented a record low share of 2023 issuance (1.2%).
Deals in August skewed toward single-B grades (43% share), up from 30% in July. The allotment for BB bonds, 40%, was up from July’s 29%, while the carve-out for bonds straddling BB/B was 17%.
Refinancing remains the prime motivator for issuers in 2024, though a broader array of funding needs were addressed in August. Refinancing, at 54% of August supply, was the lightest weighting since September 2023. Elbowing into the share, dividend-focused bond deals ticked up to 12%, the largest percentage since early 2019. A steady cadence of dividend recap bond deals has continued in September. Pure M&A volume, excluding leverage buyout (LBO) bond deals (which failed to materialize in August, amid a sub-3% share for LBO bonds this year), closed at 23%. Issuers padding general liquidity accounted for another 11% of the total, a high share since June 2023.
The asset class gained a solid 1.54% in August, per the S&P US High Yield Corporate Bond Index. The total return through August in 2024 was 6.37%, besting the 5.78% return for the Morningstar LSTA US Leveraged Loan Index.
Following a midmonth net outflow from high-yield bond funds, investors resumed pouring cash into the vehicles, for inflows totaling more than $3 billion during the final two weeks of August. Through August, net deposits totaled $23.3 billion this year, tracking toward the first annual inflow for the fund since 2020, per Morningstar.
The secondary market was generally positive against the seasonally slow backdrop. The average bid of LCD’s 15-name flow-name bond sample rose from 93.49 at the beginning of the month to 93.96 at the end of it.
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