Outlook 2024: High-yield bond dealers look for substantial pickup in new issue volume

By Paul A. Harris

Portland, Ore., Dec. 29 – High-yield bond new issue volume increased by a year-over-year rate of 70% in 2023.

However, that fact may require some qualification.

After all, the comparison is between 2023’s $178.6 billion of issuance and 2022’s $105.7 billion, the lowest amount in recent market history. In order to turn up a year of lower issuance volume than 2022’s requires a trip back in time to 2008 ($64.1 billion), amid the subprime mortgage collapse, which climaxed with the catastrophic failure of Lehman Brothers in September of that year.

The 2023 figure, shy of $180 billion, is paltry when considering that the past year is only the third since 2010 which failed to top the $200 billion mark.

Inflation suppressed 2023 issuance, at least through the first three quarters.

That, and the fact that during the 2019-2021 timeframe, when rates were easy, issuers wisely addressed maturities in 2023-2026, sources say, diminishing the year’s supply of refinancings.

Wall Street spent a good deal of 2023 attempting to convince itself that central bank inflation-fighting interest rate increases had either concluded or would soon do so.

In the fourth quarter that narrative appeared to gain traction.

A late 2023 burst of issuance took place against a backdrop of cascading Treasury rates. On Oct. 18 the interest rate on 10-year government paper peaked at just under 5% (4.988%). At this writing, the 10-year bond was yielding 3.881%.

And at a press conference following the Dec. 13 meeting of the Federal Reserve Bank’s Federal Open Market Committee, during which the committee elected to keep its benchmark rate unchanged, Fed chairman Jerome Powell stated that “In light of the uncertainties and risks, and how far we have come, the Committee is proceeding carefully.”

By this time the lights out along the high-yield new issue line were flashing green.

November, which saw $23.6 billion of issuance, was the biggest month of the year.

It was followed by the biggest December ($13.4 billion) the market saw since the halcyon days of 2020.

The new year promises to keep the late-2023 momentum going, sources say.

Issuance forecasts

Citigroup looks for $240 billion of gross high-yield issuance in the year ahead.

And Citi is looking for a solid start to the new year, with big January volume, according to a source, who advised that the Jan. 8 week could be a big one.

Goldman Sachs looks for $205 billion, gross, in 2024.

At the end of 2022 the investment bank forecast $190 billion for the past year.

In a note to its clients, Goldman said that the primary drivers of this uptick are the elevated share of bonds maturing in the near to medium term, coupled with the significant erosion of balance sheet liquidity positions.

JPMorgan’s 2024 forecast, $225 billion gross, comes in the middle of Citi’s and Goldman’s forecasts.

In a note to its clients JPMorgan said that despite its view that capital market conditions will improve, ultimately, these volumes reside roughly 30% below the past decade’s norm.

© 2015 Prospect News.
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