U.S. Primary Bond Market Seized Up, Junk Bond Issuance Frozen, Chaos in China, Greece, Puerto Rico, Commodities Cited
by Wolf Richter
WolfStreet.com
July 10, 2015
It was enough financial upheaval for an entire year, but all crammed into a couple of weeks:
“Global market volatility,” the “debt crisis in Greece,” “China’s equity market plunge” and the chaotic “efforts to stabilize” it, “declining commodity prices,” “fresh shocks from Puerto Rico,” topped off with “an extended outage on Wednesday for the NYSE.” This is how LCD HY Weekly by S&P Capital IQ described the atmospherics of the US bond markets during the week.
It was when the booming if somewhat dented US bond markets took a broadside: Issuance of investment-grade bonds had seized up for the seven trading days in a row prior to Tuesday! In the junk-bond market, no new issuance made it to market at all this week, the first non-holiday week with zero issuance since July 2013, the peak of the Taper Tantrum. And in the prior week, only two deals for a measly total of $1 billion were priced. For all practical purposes, the primary junk-bond market has seized up.
Companies could have sold bonds. But in the chaos surrounding the markets, they would have had to offer a higher yield than anticipated, and deals were put on hold, pending better times.
This chart shows how junk bond yields spiked during the Taper Tantrum in the summer of 2013, as the market grappled with the until then inconceivable idea that the Fed would taper QE out of existence. This blew over, and the high-yield market returned to the halcyon days of yore. But in the summer of 2014, oil began to crash. This time it was energy companies that dragged down bonds. Yields spiked to 7.59% by December. It too blew over, sort of, but since June 1, new pressures have been building up:
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