In a new report on high yield (HY) bonds and leveraged loans, the Association of Financial Markets in Europe (AFME) has found that since June 2020, the primary high yield bond market has seen monthly deal volumes “comparable to those observed before the COVID-19 outbreak, with the exception of August which saw a considerable seasonal decline.”
In its report the Association noted that HY issuance totalled €33.4 billion on 84 deals in Q4 2020, a 32.5% increase from the €25.2 billion raised in 62 deals in Q3 and a 1.5% decrease from €33.9 billion on 67 deals in Q4 in 2019. Developed market Europe issuance accounted for 87.0% of the Q4 2020 issuance, with €29.1 billion on 70 deals, while the 13.0% remaining (€4.3 billion on 13 deals) was issued by emerging market European firms.
“European high yield spreads rose from 300bps in January 2020 to a maximum of 866bps at the end of March,” wrote the report’s authors, including Gary Simmons, managing director, for High Yield and ECM. “By mid-August, high yield bond spreads had declined to 450bps and have continued to decline to 350 bps in December 2020.. Moody’s and S&P reported an increase in the trailing-12-month speculative-grade default rate to 4.7% and 5.3% respectively.”
HY bonds were mainly issued in Q4 to support general corporate purposes at €25.5 billion, which was up from €12.4 billion in Q3 and up from €17.7 billion in Q4 2019. In developed market Europe, the auto/truck sector led issuance with €5.3 billion (18.4% of total), followed by finance with €4.2 billion (14.2% of total), and transportation with €3.5 billion (12.1% of total). In emerging market Europe, the top three sectors were: finance (€2.4 billion or 55.3% of total), followed by metal and steel (€1.1 billion, 26.1%) and food & beverage (€0.8 billion, 18.6%).
The proportion of USD-denominated issuance increased to 21.0% of all issuance in Q4, up from 13.3% in Q3 but down from 26.0% in Q4 2019.
"All the 20 asset classes tracked in the AFME report recorded positive quarter-on-quarter (q-o-q) returns in Q4 2020, with the exception of US Treasuries," AFME found. "Russell 2000 led q-o-q returns with an increase of 31.0% in Q4, followed by the US HY Distressed with an 25.2% gain q-o-q. The worst performing asset class was US Treasuries with a loss of -0.9% q-o-q in Q4, followed by EMU Covered Bonds with a 0.2% gain q-o-q, and US Mortgages 30Y with a 0.3% gain q-o-q."
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