After a slowdown in March, primary-market issuance has come back with a vengeance. Given the challenging macroeconomic backdrop, this is impressive and is testament to the rising popularity of credit among asset allocators.
Investment-grade companies were the first to test the waters: their issues reached a high in April, before high-yield peaked two months later (see figure 1). Issuance was dominated by A and AA-rated companies in April, before BBB-rated credit recorded 235bn-worth of issues in May. It took a little while for high yield to recover and BB and B-rated credit peaked in June.
Figure 1. Primary-market issuance recovers
Source: ICE Bond Indices, as at October 2020.
Investment-grade issuers will likely take advantage of yields at all-time lows and refinance their higher-coupon debt over the coming months. Companies at the higher end of the ratings spectrum may even start putting their excess cash to use, especially if the global economy continues to stabilise.
On the other hand, lower-quality investment grade and high-yield issuers are likely to retain their creditor-friendly approach by keeping liquidity in good supply – something that will help keep ratings agencies at bay.