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March High Yield Issuance Is All Time Record
The great risk transfer into Other People's Money continues as evidenced by an absolute record amount of high yield issuance in March: so far was have seen $29.7 billion in bonds price and with over ten more deals announced for this week to take advantage of the euphoria gripping the three stocks (C, BofA, QQQQ) that now represent the entire stock market, we are sure to surpass $32 billion. Banks are scrambling to underwrite as many bonds as the buyside will accept knowing full well the new issue window will likely close soon (or at such time as the American middle class says enough to the great wealth transfer experiment conducted by the Federal Reserve). The last time we saw such irrational exuberance in bonds was in the months and days leading to the onset of the second great depression (oh yes, consumer confidence at 52.5, which about 30 below levels indicative of a healthy economy, came in better than expected).
From Thomson Reuters:
High yield issuance so far in March exploded to $29.7 billion. With 13 deals already announced for this week, March is certain to set a new record, probably in the $32-34 billion range and well above the old record of $28.9 billion set in November 2006. Three multi-billion dollar deals priced last week. Lyondell Chemical issued $2.25 billion to fund its emergence from bankruptcy. CONSOL Energy brought to market a $2.75 billion, two-part deal to help acquire the Appalachian oil and gas exploration and production business of Dominion Resources Inc., and Frontier Communications issued a $3.2 billion, four-part deal to acquire select CLEC and landline operations from Verizon. Investor demand has been strong, and last week especially has proven the market is apable of absorbing mega-sized deals. With short-term interest rates expected to stay low and investment grade bond yields the lowest in 20 years, lenders are eager for opportunities offering higher returns, particularly when many of these issuers have already gone through restructurings and show improved balance sheets. Without taking into account normal amortization on existing loans, an estimated $119 billion of leveraged loans are set to mature in 2010, another $217 billion in 2011, $363 billion in 2012, and $378 billion for 2013. While the size and severity of the refinancing cliff is debatable, issuers are nonetheless taking advantage of robust demand for bonds to refinance existing debt and push back the ever-nearing maturity wall. Almost $22 billion of bonds have already been issued in 2010 to repay bank debt.
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One can only conclude that Ben Gono is going to let this frenzy ride to its own fatal and inevitable conclusion. That conclusion may only follow after all who read this blog are drinking the same Koolaid.
Enjoy it while it lasts.
You make it sound like it's a BAD thing.
"High yield issuance so far in March exploded to $29.7 billion. With 13 deals already announced for this week, March is certain to set a new record, probably in the $32-34 billion range and well above the old record of $28.9 billion set in November 2006."
Of course, these numbers don't take into consideration the ultimate high yield junk, being issued hand over fist and which is criminally mispriced and misrated. I'm talking about US Government debt, the suckers who buy it and the criminals who rate it, push it and recommend it.
50 years from now, when a better, more sane world rises from the ashes, people will shake their heads in disbelief of the mass hysteria that decended upon the world and the depths of denial everyone sunk to in order to perpetuate the wholesale theft of brother, mother, neighbor and friend. Mass psychosis of this magnitude is an once in a 1000 year event.
I wonder how much is being bought by the Fed, that sounds about the amount that was required to run down the QE balance ($20 - $30Bn).
Get while the gettin's good. Snouts in the trough for all!
ZERO % rates will do that.
I know that bad loans are made in good times, and the most painful thing to ever do is reach for yield.
To Assetman's point, it's not a bad thing for the issuer's, but when was the last time that you saw both parties win on a junk deal?
DB
My apologies to the audience for the vague one-liner, but dabullify is exactly on point here.
The Fed lauched this reflation campaign with the intent of (a) recapitalizing the financial system; and (b) recapitalizing anything else that investment bankers could generate an underwriting fee with. It's certainly NOT a bad thing for them.
It's also not a bad thing for the rest of us that are standing aside on the new issues, as some of us just might be able to profit on someone else's stupidity.
It's those who are jumping in with both feet (the yield reachers) and not seeing the forest through the proverbial trees who are about the encounter the bad thing. Though they may also be paid 100 cents on the dollar via goverment intervention... which may not be such as bad thing after all.
I need an Advil.
I think Assetman is right...Tyler, what you are doing now is called in behavioral science "confirmation bias". That means you have a view on the world and all you do is look for instances that fit your view and call it proof that your view is right.
Thats bullshit. The markets have proven you wrong. The markets are always right. Until they're not. But who cares, it's been one year now and trading on your views would have lost me many MANY $$$.
What you don't realize is you're being robbed while you sleep. A rising market lets you and most Americans sleep at night, lulling you into a fantasized "wealth effect". Meanwhile you're getting your pocket picked, your wife raped and kids sold into slavery. That's because unless you're in the elite your earning power is dropping, the value of your home is crumbling, your job security is eroding, and the taxes you'll pay are rising along with gasoline, food, education, insurance, transportation, consumer interest and the general cost of living and doing business. You'll work harder and harder for less and less. The chance of saving your way to a better life or a retirement is getting vaporized. You're gettin' raked, buddy. But your little 401k or discretionary stock portfolio is up this year, yet down over 10 years. Gret deal, bro.
There's your bubble. $172 billion in 2009 plus about $70b YTD. And that's just one aspect of it. Secondary public offerings have been at exuberant levels for even longer, since April last year. Although cumulative figures are closely held, the floodgates have been open to the tune of Hundreds of Billions. This week it's Ford and AIG (hehe after reverse split :) ) to name only 2.
I've been maintaining that this is how the Fed is engineering a general recapitalization of corporate America including Financials. It is also how they're preventing massive levels of defaults on debt that needed to be rolled while credit markets were locked down (and are still frigid).
In order to accomplish this mission the market could not be ALLOWED to function normally as a free market. Else all dilutive stock offerings would plunge stock prices, which they are not. All the excess is being soaked up using Fed carry trade zero risk zero interest liquidity. Which Wall Street banks soak up and use to trade (and keep any fees). That's the game, folks.
The junk bond conundrum (excuse the Greenspy_ism): in normal markets junk bonds are used to finance LBOs, mergers, and other high risk deals. Not to cover operating expenses, prevent layoffs, or to roll older debt. Of course this is the first layer of a pyramid scheme: if companies are borrowing big at 6% that can only work out if they can later borrow at a lower rate. Quite the little gamble with the future health of the economy! If rates don't stay low and credit markets don't start to flow forth like smoothies instead of Mr Softee, then defaults will be on the rise and the second leg of the double dip will be violent.
The transfer of wealth from taxpayers is funding this great experiment. What could possibly go wrong?
Yes, The Fed is pumping out liquidity at record pace. One estimate has it running $30-BB a month. Considering that BeBe had the liquidity contraction pegged at $4-trillion, just out of the mortgage-fraud/CDS-fraud disasters, no one should be surprised.
The Fed wants to do this without exploding the money supply.
And no, "function normally as a free market" is simply meaningless in a immediate post-bubble Yin contraction. That's what TSec Mellon advised for President Hoover. Too much damage has been done. Too many balance sheets are damaged. Fear overcomes the normal Yang profit-seeking and market prices are likely to fall in deflationary spirals.
The POV from caviar (and others) leads to a fallacy of composition error, if applied by the Fed. These factors notwithstanding -- Yin fear and market irrationality -- this POV will become useful in another 2 or 3 years when the normal Yang processes are revived.
Limiting debt impact is also possible.
A simple proposal -- the David Brooks Wealth Tax -- could easily enough "sell off a few of the Mercedes" and rebalance the income distribution to a normal American pattern. Leave off residential first-home real estate and tax wealth/net_worth above $100-million at something like 1% or 2%. Sets rates lower, at maybe 1/4% for wealth/net_worth down to $10-million.
With Americans at $55-trillion in wealth/net_worth, Mr. Brooks's idea has merit. And a tax of this form would have a minimum impact on economic activity, compared to any other common tax stream.
"Sell off a few Mercedes" won't be any where near close to rebalancing the new 'Great Divide" in American household wealth. Deflating incomes, employment prospects, real assets and retirement in a context of Fed-induced reflation guarantees that the divide is more like the Grand Canyon every day. Recessions used to hit only "last hired-first fired" and unskilled workers. Then the lower middle class (70s), then the broader middle (80s), the Great White (collar, that is) during "Downsizing" in the early 90s. Now it's reached the professions (unemployed partners at legal firms, doctor pay cut 21%). The stats are overwhelming now confirming accelerating disparities in incomes and assets. A tax-based re-equilbration is a fantasy because oligarchs have too much political clout. And political will is gutted: ask Obama about "disparaging wealth", ask Shelby about TBTF, ask Dodd about AIG bonuses. Next there are ways and ways of hoarding wealth, ducking tax men, giving with one hand and taking back under the table. These are time-honored and there are people open for business ready to help fulfilling this demand.
In fact it's going way in the opposite direction: US taxpayer fixing corporate balance sheets, recapitalizing cash levels, paying down debts of failed companies, supporting bonuses on Wall Street, keeping Citi and Bof A as they continue to be unprofitable after 2 years of support. All the while we're closing schools, hospitals, jails and loosening restrictions on guns
*** David Brooks Wealth Tax ***
The proposal moves 1% to 2% a year at the top. That is, for the over $100-million net worth class.
Is that bad ?
The top 1% own 40% of the wealth. 40% of $55-trillion is $22-trillion. 1% of that is $220-billion a year or $2.2-trillion a decade.
Taxing at 1/4%, 1/2%, 3/4% for the middle tranches also generates revenue and makes for substantial redistribution. These folks are adept at avoiding paying normal income taxes and minimizing capital gains. Taxing wealth is the logical alternative.
Speaking of consumer confidence, anyone notice intent to purchase Automobile dropped to 3.8% from close to 5%, with the latest reading the lowest reading of the data series (back to August 2009) and more amazingly, below the level of March 2009 (ie, fewer ppl plan to buy a car now vs when the entire banking system was swirling down the drain)
How about intent to purchase a new TV dropping below March 2009 levels also.
Wonder if risk assets are priced for a contraction in consumption.
Tyler, you wrote up a report that summed up all the issuance coming up in the next three years: HY, IG, and sov.
Can't find it. Could you please post the link?
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