High-yield bond issuers can expect to see strong demand for their fixed-income securities throughout the rest of the year, according to market watchers.
"I don't see any pending pressure to aggressively raise rates, which means it could still be a favorable environment for new issuance as well as for the secondary market," said Mike Taylor, a high-yield strategist at Bear Stearns. He added that although the election and terrorist concerns add uncertainty to the market, the economy is generally strong and growing steadily and default rates are expected to continue to drop.
"The low level of rates makes it attractive for issuers to come to the market in the couple of months," said Kingman Penniman, ceo of KDP Investment Advisors, adding that earlier in the year, most people didn't expect that the 10-year treasury note would be below the levels seen in January. Last Wednesday, the 10-year note was trading at 4.10%, while on January 5, it was at 4.38%.
Penniman expects 2004 to be among the top three years for issuance, with a volume of between $105 and $115 billion. So far this year, issuers have sold $87.8 billion worth of junk bonds, according to KDP's numbers, which do not include convertible and preferred securities. Bear Stearns' Taylor is more cautious, and expects issuance to be close to $100 billion for the year.
Though the current forward calendar is between $1 and $2 billion, both KDP and Bear Stearns expect that the figure will likely swell rapidly this month after the Labor Day break.