New junk bonds struggle in market
New marquee junk bonds are struggling in secondary trade, as investors try to digest the biggest August of high-yield bond issuance in five years.
Marquee offerings from Tesla, Staples and ClubCorp - all priced within the last week - were all trading down Friday, and underperforming what is already a weak junk-bond market.
Tesla’s inaugural US$1.8bn 2025s, some of the most traded notes of the week, were changing hands Friday morning at 97.5, or down 2.5 points with a yield now approaching 5.7%.
The new US$1bn eight-year notes from Staples were seen at 98 to yield 8.85%, while a smaller deal to finance Apollo’s buyout of ClubCorp had dropped four points as of Thursday.
“These three are underperforming but they are generically indicative of the market,” said John McClain, a portfolio manager at Diamond Hill Capital Management.
“We priced a lot of new issues for August, and there is a bit of indigestion.”
So far the US high-yield market has priced nearly US$20bn of new deals in August, or roughly twice what was sold month-to-date in the same space two years ago.
Even so, junk bond spreads are backing up - out 32bp since the start of the month and close to their widest levels since April, according to data from Bank of America Merrill Lynch.
Data from Lipper show investors withdrew around US$2.2bn from US high-yield bond funds in the week to August 16 - the largest one-week outflow from the asset class since March.