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One month ago we reported that the junk bond market had effectively frozen as a result of surging spreads, or as the FT put it "ground to a halt", because for the first time since November 2008, not a single high-yield bond had priced in the market in the past 30 days. Today, the Wall Street Journal picked up on this, reporting that "December was the first month since 2008 without a junk-bond sale." In fact, the market had gone for a whopping 40 days without a sale, the longest stretch in data going back to 1995. The reason for the bond issuance drought was a familiar one: "volatility in financial markets, uncertainty about the economy and the recent drop in oil prices are discouraging riskier companies from issuing debt and investors from buying it."
Of course, it hasn't been a complete freeze for the junk market, which was hit with $101 billion in net investor outflows in 2018. As we noted previously, whereas there has been no bond issuance in the past 6 weeks, loan issuance has been lively, if subdued, totaling $25 billion in November and December according to LCD. But that was still a significant slowdown from previous months.
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As the WSJ notes, the drop-off in debt issuance, whether junk or not, is important because it "complicates companies’ efforts to invest in plants, equipment or other business infrastructure, a key component of economic growth" (this is different from IG company borrowing needs, where the funds are usually used to fund M&A and/or stock...
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