The first quarter was a great time to bet on corporate bonds with the lowest credit ratings, as investors braced for an economic recovery from the pandemic – and it may not be. too late to buy the tickets.
High yield bonds rated in the CCC level, typically the lowest-rated bonds that trade, have gained 3.58% year-to-date, according to total return data from the Bloomberg Barclays Index. They outperformed leveraged loans, which returned 1.78%, and investment grade bonds, which posted a loss of 4.65%. They also outperformed mortgage bonds and treasury bills.
The higher coupons paid by the securities may offer protection against the spur of rising yields. CCC rates average coupons of 7.7%, compared to 5.9% for all high-yield debt and 3.7% for quality corporate bonds, according to Bloomberg Barclays Index data .
“Lower quality trading still has some legs,” said Scott Kimball, co-head of US fixed income at BMO Global Asset Management. “Investors generally look to high yield securities, especially CCCs, when yields are rising. Now we are seeing record positive US growth revisions by economists further boosted by record stimulus expectations. “
The riskiest victories
This application helps CCC rated companies attract investors for real money. Cetera Financial Group Inc. is expected to close a $ 400 million bond offering on Thursday to help fund its acquisition of a financial planning firm from Voya Financial Inc. The deal is rated Caa2 by Moody’s Investors Service and an equivalent CCC by S&P Global Ratings.
• Michaels Cos. launched a $ 2.3 billion junk bond operation to fund its buyout by Apollo Global Management, with investor calls until April 8.
• No new high-quality bond operations were launched on Thursday, as issues subsided before the Easter weekend.
• Citigroup says 20-40% of U.S. CLO managers will incorporate environmental, social and governance factors into new CLO issuance over the next two years, up from 11% last year, according to estimates from analysts led by Maggie Wang.
• Deutsche Bank AG has hired Sebastian Pearce, veteran of JPMorgan Chase & Co., to lead European high yield bond trading, as it strengthens the workforce in this unit in a booming business environment.
• UK is stepping up efforts to distance itself from Libor. From Thursday, companies are expected to stop issuing new loans, bonds and securitizations linked to the discredited benchmark, according to the Bank of England.
• HSBC Holdings Plc gained ground in European bond underwriting this year as deal value rose 8%.
• Issuers sold € 692.5 billion in bonds up to March compared to € 641 billion a year ago.
• Global sustainability loan issuance totaled at least $ 77 billion in the first quarter, more than double the same period last year.
• Credit default risk declined in Europe on Thursday for investment grade and high yield companies.
• New sales of dollar bonds in Asia surged in a shortened holiday week thanks to Pakistan’s $ 2.5 billion three-pronged offer. Parts of the region, including Hong Kong, will have public holidays on Fridays.
• New issues rose 45% to $ 8.4 billion this week from $ 5.8 billion the week before, according to data compiled by Bloomberg.
• Pakistan turned to fixed income markets after resuming a $ 6 billion bailout program with the International Monetary Fund.
• AIA Group has raised $ 750 million from a Tier 2 note offering, while Chinese developers, including Jinmao and Logan, have also sought debt financing in dollars.
• Spreads on Huarong dollar bonds widened Thursday morning in Hong Kong after the city’s stock trading was suspended following a delay in the company’s earnings report.
This article was provided by Bloomberg News.