The following is an excerpt from today’s report from LFI partner publication CreditSights, titled “Makes Me Wonder: Prior HY Cycle Tights vs. Now,” with a graphical representation. The report is available in full to subscribers online, but a snippet follows:
- As a follow-up to our examination of historic IG tights compared to current valuations, we take a look at prior all-time tights for HY spreads, assessing just how tight they can go.
- HY spreads are closing in on historical tight levels with BBs and Bs trading below 2021 levels, making a new post-GFC tight likely, but almost fully contingent on further recovery in CCCs/distressed.
“So far in 2024, the HY market is extending its hot streak with spreads tightening to 323bps, the lowest level since early 2022 and materially below the July 2022 wide of 599bps. While many have expressed concern about leveraged finance maturities, a burst of activity in the primary HY bond and leveraged loan markets (and capital still on the sidelines in private credit funds) has helped to alleviate some of these worries. The positive sentiment has resulted in strong demand for new issue, even for more storied issuers, like First Quantum, and a wave of BSL for private credit takeouts as issuers capitalize on more attractive pricing,” according to Winnie Cisar, global head of strategy at CreditSights in today’s report to clients.
“In retrospect, the week of June 5, 2007’s Billboard Hot 100 hit “Umbrella” by Rihanna featuring Jay Z proved prescient as the duo opined on the potential for clouds ahead, the need to take cover and rain ‘coming down like the Dow Jones.’. At the same time, the HY market was oblivious to the brewing storm of the Great Financial Crisis, and notched an all-time tight of 241bps, 82bps tighter than current levels,” according to Cisar’s report.
Matt Fuller
LevFin Insights
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