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Leveraged Loan, High Yield Bond Players Step Cautiously Into 2016

The U.S. leveraged loan and high yield bond markets had a cautious, quiet start to 2016, as far as new deals are concerned. US leveraged finance issuance

Loans saw $6 billion of issuance last week, and there was a slim $900 million in junk bond offerings (half of that amount was actually originated as a bridge loan, courtesy Kraton Polymers, then converted to bonds).

Of course, the limited activity comes amid serious market gyrations: U.S. equities posted a miserable start to the trading year and high yield has been somewhat of a poster boy for the recent risk-off market stance (although there are signs of late that the junk bond market might have bottomed).

With loans, the market was deliberate, but there were deals.

“Arrangers put their best feet forward [last] week, rolling out seven new transactions, four of which are large-cap, M&A-driven deals, in an attempt to set the 2016 new-issue market in motion,” Says LCD’s Chris Donnelly, in his weekly market wrap-up. “In all, the new-issue market is off to a conservative start in 2016, as participants await an outcome on this first round of new transactions.”

The market continues to face headwinds. U.S. loan funds saw their 24th straight investor cash withdrawal last week, for a net outflow of $13.1 billion over that span, according to Lipper. The high yield market has had similar challenges, of course. Indeed, investors withdrew a hefty $809 million from bond funds and ETFs last week, amid much chatter of sustained high yield hesitance.

What could kick-start that market?

“A few days of stability, no massive stock market sell-off or geopolitical event,” writes LCD’s Matt Fuller, quoting a high yield participant.

“Unfortunately, that’s not how the week unfolded,” Fuller adds, “what with the choppy market conditions, equities down roughly 5% for the week, and an unverified hydrogen bomb test in North Korea.” - Tim Cross

Check out www.lcdcomps.com for more leveraged loan/high yield bond market news and analysis. 

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