The shockwaves from the stock market crash are spreading to unnecessary bonds, dropping prices and forcing some companies to cancel new deals.
Average prices for high-yield US bonds fell to about 91 cents a dollar on Monday, the lowest level since May 2020, when the shutdown over the pandemic hit the global economy, according to Bloomberg.
The sales punished companies with credit ratings below investment grade and poor reported returns. It also makes it difficult and more expensive for some to attract new debt for capital investment, acquisition and refinancing.
Dibold Nixdorf bonds Inc.,
the ATM maker on Tuesday fell 45% to about 40 cents on the dollar after the company lowered its financial forecasts for 2022, in part due to lost sales in Russia and Ukraine.
Party City Holdco Inc.
According to MarketAxess, 8.75% bonds maturing in 2026 became one of the most actively traded junk bonds this week, falling 15% to about 74 cents a dollar. The drop came after the retail chain reported gross profit down 3.8 percentage points to 31.9% from net sales in the first quarter.
Frontier Communications Father Inc.
paid investors a yield of about 8.75% to issue $ 800 million in new bonds on Monday to expand its fiber-optic network. The unexpectedly high interest rate attracted strong demand, but led to the fact that the existing 6% of the company’s bonds from 2030 fell by about 8% to 80 cents per dollar, according to MarketAxess.
“It’s never a good sign if the new emissions market isn’t functioning well,” said Eric Hess, a high-yield portfolio manager at Newfleet Asset Management. “The last couple of days, the sale of shares has scared people a little.”
According to Bloomberg, high-yield bonds have lost about 10% this year as a result of the widespread defeat of the bond market. Their yield, which is growing with falling prices, is now about 7.5% compared to 4.3% in early January. Until recently, unneeded bonds were relatively isolated from sharp shifts in stock indexes such as the S&P 500, which lost more than 17% this year, but the two markets are starting to trade more in tandem, investors say.
Additional yields required by investors to hold unneeded bonds compared to U.S. Treasury bonds jumped to 4.4 percentage points from 2.8 in January. This is still well below the recent high of 11 per cent in March 2020.
“Today it looks like a surrender,” Mike Scott, a high-yield portfolio manager at Man GLG, said Monday.
Unnecessary bond prices fell earlier this year when the Federal Reserve gave a signal that interest rates would rise quickly, forcing investors to demand higher returns for the loan. More recently, the losses have been caused by fears that inflation and tightening monetary policy will lead to a recession. Wind meetings in areas such as healthcare, cable, entertainment and technology, have accelerated the downturn.
HCA Healthcare Hospital Operator Inc.
In recent days, bonds have fallen by about 3% to 88 cents a dollar due to fears about rising labor costs and staff shortages, fund managers said.
$ 3.3 billion in bonds issued by online auctioneers of used Carvana cars The company
two weeks ago it has since fallen sharply, hitting buyers a deal with a 9% loss. The company struggled to place the debt until the alternative asset manager Apollo Global Management agreed to buy about half of it.
Others generally pull transactions out of the market.
Manufacturer of medicines Bioventus Inc.
last week withdrew a $ 415 million bond with a low credit rating of triple C that was supposed to pay for the purchase. “Current market conditions do not promote the offer on terms that would meet the interests of its stakeholders,” – said then in the company. A Bioventus spokesman declined to comment.
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According to Lipper Inc., since the beginning of February, investors have withdrawn about $ 23 billion from mutual and exchange-traded funds in the market.
“No one comes to buy,” said Jim Schaefer, portfolio manager of Aegon Asset Management. “Usually people think the Fed will step in and do something to help, and now the Fed is on the opposite side.”
Hunters for deals are not yet interested in unnecessary debt because safer investment-grade bonds have also lost about as much, making them the best choice at the moment, portfolio managers said. Buying discounted investment grade bonds during the coronavirus sale in 2020 proved to be a lucrative deal for many high-yielding investors.
The yield of the Bloomberg index on investment grade bonds rose to about 3.6% from 1.8% this year, while the average price of the dollar fell to about 93 cents per dollar from 104. The spread of Treasury bonds has increased this year to 0.51 percentage points out of 0.35 points.
“We see that investors prefer better credit market segments because they can achieve their profitability targets without taking on additional risks,” said Joe Lind, co-head of the high-yield division of Neuberger Berman Group LLC.
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