The U.S. high-yield bond market is showing signs of life, with the first two borrowers in weeks looking to price deals amid indications of improved investor interest.
Twitter Inc., the social media giant, is seeking to raise $1 billion through the sale of eight-year unsecured notes rated Ba2/BB+, in part to help finance a share buyback. BellRing Brands, a protein shake maker, began marketing $840 million of 10-year notes to finance its spinoff from Post Holdings.
The offerings constitute a re-opening of sorts, as companies have avoided the market since early February. One reason was that the Federal Reserve’s prospective rate increases were raising borrowing costs; then came the heightening of Russia-Ukraine tensions, which led to speculation any conflict will further increase inflation and Fed hawkishness.
Bets on a 50-basis-point bump in rates from the Fed next month are rising. Meanwhile, President Joe Biden enacted sanctions on Russia, and is likely to expand them.
But for all the economic and geopolitical risk stirring up markets, some see opportunities in junk bonds.
Investors have slowed cash withdrawals from high-yield retail funds, after pulling almost $17 billion in a six-week stretch. Outflows moderated to $44 million at Friday’s close after more than $2 billion in outflows in five of the last six weeks, driving the total to $16.7 billion, JPMorgan wrote, citing Refinitiv Lipper.
The U.S. investment-grade market is also back in action Wednesday after at least five companies stood down Tuesday -- another indication of investor interest.
And while the risk premium in junk is rising and returns have been negative this year, Winifred Cisar, global head of strategy at CreditSights Inc., still sees market access for speculative-grade bonds.
“We’ve already hit the all-time low point in yields in both investment grade and high yield,” Cisar told Bloomberg TV on Wednesday. “We don’t think the move in yields has become a threat to either investment grade or high yield quite yet. Companies can still borrow at very low levels.”
Elsewhere in credit markets: