As fears of a severe US recession recede, investors flush with cash are looking to put money to work in junk assets. Companies with upcoming maturities are rushing to take advantage.
Anemic issuance means demand far exceeds supply in high-yield markets. That’s paved the way for borrowers to create a little more wiggle room via refinancing and amend-and-extend transactions ahead of a wall of more than $1.6 trillion of junk corporate debt that’s due for repayment through 2029.
“Credit spreads are now trading through our bull case in US investment grade and high yield, while approaching those levels in loans,” the strategists, including Vishwas Patkar, wrote in a note to clients. “While credit has lagged” the US rally in Europe, “overall valuations are also approaching our previous bull case targets.”
“Many corporates are choosing to wait for peak terminal rates to be behind us, allowing for a less steep increase in average cost of debt upon refinancing,” said Fraser Lundie, head of fixed income at Federated Hermes. “However, fundamentals will be increasingly challenged the longer we stay at peak terminal rate levels.”
For now, however, “a two-speed economy, sticky inflation and muddled global economic picture” looks to be “aiding high-yield assets generally but the most high-quality high-yield assets more specifically,” Bloomberg Intelligence’s chief US credit strategist Noel Hebert wrote in a note on Friday.The $1.5 trillion private credit market set a fresh record for the largest loan in its history. Lenders including Oak Hill Advisors LP, Blue Owl Capital Inc. and HPS Investment Partners LLC.
Apollo is poised to sign more than $4 billion in so-called NAV loans as it steps up unorthodox lending to private equity firms looking to raise cash in a challenging high-cost environment. Credit Agricole CIB recruited David Norton from Cantor Fitzgerald LP as a managing director in high-yield sales.
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