Issuance in the U.S. leveraged finance market all but shut down last week as junk bond players watched a highly visible fund liquidate and leveraged loan players remained largely on the sidelines, with one eye on year-end and the other on the careening high yield market.
Third Avenue Management last week barred redemptions from a $788 million junk bond fund – opting instead to liquidate – spooking many in market who had been watching high yield ETFs sputter along for much of the year. (If you were unfortunate enough to be on or near Twitter on Friday you might have been convinced a financial apocalypse is nigh, with the iShares iBoxx high yield ETF fund the lead horseman).
“Activity ramped down more quickly than anticipated for new issues [last] week as the secondary market fell hard alongside plunging oil, gas, and iron ore prices,” explains Matthew Fuller, who covers high yield for S&P Capital IQ’s LCD unit.
The high yield worries come alongside a hefty investor retreat from funds. Last week saw a withdrawal of $3.5 billion from high yield mutual funds and ETFs, the largest such sum in 70 weeks, according to Lipper.
Year to date, high yield funds have seen a net outflow of $2.1 billion, says Fuller, quoting Lipper. YTD high yield issuance in the U.S. is $263 billion, a 15% drop from the $310 billion at this point in 2014, according to LCD.
The U.S. leveraged loan market was largely quiet last week, with a handful of smallish new issues. Year-to-date U.S. issuance stands at $424 billion, down almost 20% from the $526 billion at this point last year. - Tim Cross
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