Riskier high-yield sales are struggling to get out of the gate while investor risk-appetite continues to dwindle, as the Chicken Little syndrome prompted weeks ago by General Motors' profit scare gains traction. At the same time, some market participants are saying the slump is being caused by economic numbers that continue to paint a mixed picture about the state of the U.S. economy.
The latter view is one held by Harry Resis, director of U.S. fixed-income at Henderson Global Investors in Chicago. "I can't recall a time when there was more confusion about whether the economy was slowing or not slowing, growing or not growing; the market is at a standstill until it has a strong conviction about the economy," he said. While GM is clearly worrisome, he added the stock market's downturn is far more significant. "High yield has moved almost tick for tick with the stock market," Resis pointed out.
The rash of postponed and delayed new deals continued through last week with transactions from the likes of Alliance One, NewPage Corp. and Hughes Network Systems, among others, being met with resistance. One high-yield investor said, while he doesn't think the day GM falls will mark a pivotal moment for high-yield, the market is preoccupied with the auto sector. "The market is fickle. It's so focused on GM and Ford [Motor Co.], it's hard to get anyone's attention on anything," he noted. A researcher added: "I'm so tapped on talking about GM and Ford. Just take 'em down and be done with it."
Investors and market participants alike said the primary market is not stalled just because of concern about GM. "Decent deals will be done but the glory days are over," one sell-sider said. Resis pointed to the over $6 billion of mutual fund outflows over recent weeks, in addition to anecdotal evidence other investors have also pulled out, as evidence the tide has turned in terms of new issue demand. He said market participants have cashed in their chips after a banner year it's not just GM.
A high-yield strategist suggested the market has already priced in the GM episode as it's trading as though it were a triple-C credit and the potential downgrade may be a non-event.
