High yield bankers are nothing if not optimistic. Notoriously so, perhaps. The same goes for investors in the market — you have to be, when you are investing in cyclical companies with heavy piles of debt. Market participants know that you have to apply a discount to their predictions for the market.
So when the head of high yield at one of the market's biggest players admitted to GlobalCapital in mid-August — after a little pressure — that issuance in September was going to be pretty thin, that looked like a reliable sign that deals would be sparse.
Since then, financial markets have got worse, with Monday August 24 entering the history books as another Black Monday — if only for Chinese equities.
But the market still has plenty of scope to beat expectations. No one is predicting a deal bonanza, but bankers and investors say it is too early to dismiss the prospect that September could produce a decent crop of new issues — provided there are no fresh shocks to global markets.
One investor expects at least five refinancings to come to market this month. So far, only two deals have been announced, for Arkelius Residential Property and paper maker Portucel, but it is early days.
Energy prices, of course, will have a big influence on the market. The high yield world has decided that weak crude is bad news for high yield. This is unfair, of course, especially for the European market, where less than 6% of the index is directly affected by exposure to energy, commodities or China, according to CreditSights.
But the US high yield market is more heavily tinged with energy issuers, especially shale oil and gas companies. And since many of the leading high yield investors are global funds, managed by US firms, if they decide to allocate away from high yield, they are likely to start selling European bonds as well as US ones.
From that point of view, the rebound in Brent crude prices in the past few days, taking a barrel from below $45 to above $50 again, is good news for European high yield. Alternatively, savvy investors could see oil-induced widening of unrelated European paper as a buying opportunity.
High yield may also look attractive to flexible investors wanting shelter from emerging markets or equities.
If deals start to flow in September, they are likely to be mainly double-B and high single-B, though — the riskier echelons will have to wait till the market has been convincingly reopened.
Hopes for issuance may just be bankers talking up their own book, or investors getting over-excited. What can often happen is that, however hopeful the intermediaries and buyside, the issuers just get cold feet.
One view also emphasises that September's issuance window will be curtailed at the end by the planned Greek general election on September 20 and Catalonia's regional election — intended to act as an unofficial independence referendum — on September 27.
A reopening of the market may rely, then, on issuers that cannot afford to wait any longer to issue, or on those that are not desperate, but willing to pay the price to get on with their funding.
The ranks of the former have been thinned a little by the €10bn surge of 14 deals at the end of July, amid the euphoria after the agreement on Greece's third bailout.
As for the latter, funding conditions are clearly not as good as they have been in recent months, but with the Crossover index at 340bp, it is only back to where it was at the beginning of this year, and for much of the fourth quarter last year — and for years until late 2013. Meanwhile, the five year euro swap spread, at 45bp, is tighter than in June and back to around last October's level.
Ultimately, the high yield market has a good track record of bouncing back after a period when it has seemed almost closed. One example was the beginning of this year, when a very quiet fourth quarter was succeeded by a vibrant first quarter, which included a storming €4.8bn deal by Altice for the takeover of Portugal Telecom. In high yield, sometimes a market shutdown is really just a rest.