The recent decline in the yield of the benchmark 10-year Treasury note is leading previously skeptical high-yield issuers to take a second look at the market and consider issuing bonds in the coming five months, according to capital markets heads.
Enquiries from companies about issuing opportunities have increased recently at Credit Suisse First Boston, according to Peter Espy, a high-yield capital markets associate at the bank. "Fundamentals are back in place to support a rise in issuance," he added. John Ong, global head of high-yield capital markets at BNP Paribas, said that contrary to what several market watchers had predicted a couple months ago, the remainder of the year will be nearly as busy as the average month in 2004. Through July of this year, an average of $13 billion has been issued per month in the U.S., according to Susan Wu, a high-yield analyst at Banc of America Securities. Her prediction for the remainder of the year is for issuance to range between $8-12 billion per month.
Healthcare companies may be among those considering coming to market soon because their bonds tend to trade at spreads that are closer to the Treasury market, according to CSFB's Espy.
The benchmark 10-year currently yields in the 4.25% range, down from around 4.75% at the beginning of the second quarter. The bulk of the decline was fueled by the recent payroll data, which indicated the U.S. economy may not be growing as fast as previously had been thought.