Bangkok--11 May--Standard & Poor's
The high-yield market made headway this past month, with high-yield bond and leveraged loan spreads improving steadily throughout April, said an article published today by Standard & Poor's.
New issuance increased in both the bond market and loan market month over month, according to the article, titled "U.S. High-Yield Prospects: Tightening Credit Spreads Mask Continued Credit Quality Deterioration (Premium)." Additionally, recent economic data offered a glimmer of hope that the pace of the economic decline is slowing.
For speculative-grade bonds, spreads tightened 232 basis points (bps) during April and 448 bps year to date (as of April 30). Standard & Poor's speculative-grade composite index finished the month at 1,200 bps, the lowest level since Oct. 16, 2008. The rally has extended across all rating classes. The loan market has shined as well, with the average spread to three-year call on large institutional loans down 300 bps during the month.
"Although secondary pricing has improved substantially since mid-December, spread levels are still quite high, and for good reason," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "We expect the 12-month-trailing speculative-grade default rate in the U.S. to rise from 7% in April to 13.9% at the end of 2009 and to 14.3% by March 2010."
"With default risk still high, investor inflows into the asset class may be slow because the risk-reward trade-off is not as appealing now that spreads have narrowed," said Ms. Vazza.
The speculative-grade primary market had the best month since May 2008. Approximately $7.6 billion of bonds on 13 new issues came to market in April, with ratings ranging from 'BB+' to 'B'. Investors continue to find value in the asset class, as the yield-to-maturity on new issues ranged from 8.5% to 12.6% during the month.
The standard version of this article is part of our standard Global Fixed Income Research content. The premium version contains expanded analysis of the article's most significant points, typically broken out by sector and region. Also in the premium version are in-depth charts and tables, the underlying data of which are available for download. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Ratings in the left navigation bar, select Find a Rating. Members of the media may request a copy of this report by contacting the media representative provided.
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