Summer is here, but the news hasn't quite caught on in the high-yield bond market. Instead of lounging on the beaches, investors are scrambling around trying to get a handle on the massive new issue calendar, and the sell-side has to--well, sell. "This is not a typical summer. There are lots of deals keeping people busy: a lot of financing and a lot of new names," says Andy Van Houten, co-head of high-yield research at Deutsche Bank. Last week saw $4.2 billion of new issuance in the first four days alone, according to Merrill Lynch. Another $6.1 billion was on the calendar as the market opened last Friday. Average weekly issuance last July was $474 million. In August it was $250 million. [Last summer was unusually slow, however, as the market was near its bottom.]
Seneca Capital Management is keeping more hands on deck to figure out which of the new high-yield deals it will buy. Tom Haag, a senior trader at the San Francisco firm, says his vacation will be limited to just two or three days at the end of August, when new issues traditionally come to a halt. "It's more difficult this year compared to previous years for teams to be half staff given the large calendar," he says.
Since many new deals change hands after they price, trading shows no sign of letting up, according to Tom Keyes, head of high-yield at Peconic Securities. As a "Street broker," Peconic's only revenue comes from trading between dealer desks, and all the activity means Keyes' troops have no time to work on their tans. "I'm shocked we haven't gone to the back to back to back dead-by-9:15 mornings, and I think it's the same with all the other Street brokers. But we've got $3.5 billion on the pad for next week, and I don't see 'em turning the faucet off. I'm sure a lot of people wish it was coming in September so they could take more time away," he says.
Some investors who tried to sneak in a little down time in July were less than successful. Nate Kehm, portfolio manager at Federated Investors, found that Lake Placid did not quite live up to its name when he went there to try to take a week off. "I did work a lot between the cell phone and the laptop: a lot of half days. It's the heavy calendar, but also earnings season, and there was quarter-end reporting for the funds I manage."
An oversized workload isn't the only thing weighing on the minds of high-yield market participants. A massive Treasury sell-off coupled with a stock market that some believe has rallied too far too fast, is making some investors a bit queasy. "I'm concerned about the overall market fundamentals. We're a net borrowing country and interest rates are going up. We have big deficits to refinance. Let's say I'm looking forward to enjoying a week in the sun, but I'll be watching the horizon very carefully," says Prescott Crocker, portfolio manager at Evergreen Investment Management.
At least somebody seems to have a life. "There may be more supply this summer than in the past, but I'm going on vacation next week, and I'm not looking back, I can tell you that much," says Brendan White, portfolio manager at Fort Washington Investment Advisors.