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Boston on Investors Buying New Junk Bonds (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen
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  Speaker 1: Hayes on Bloomberg Radio. The reach for yield it's something
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  Speaker 1: we have seen around the world as investors look at
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  Speaker 1: very low yield on corporate bonds, on government bonds, negative
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  Speaker 1: yields in some countries and say where can I get
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  Speaker 1: some income. Well, junk bond buyers are certainly hard at
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  Speaker 1: the hunt, as Claire Boston reports in her story today,
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  Speaker 1: and she's joining us now to talk about what's driving
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  Speaker 1: it and where it's heading. Claire, welcome back, Thanks for
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  Speaker 1: having me so uh tell us so what what the
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  Speaker 1: trend has been, how big is it and and how
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  Speaker 1: risky is it? Well, So, junk bonds are issuance this
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  Speaker 1: year is down quite a bit. UM. It's about down
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  Speaker 1: from last year, and that's largely related to some of
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  Speaker 1: the volatility around oil prices we saw earlier this year.
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  Speaker 1: UM at issue ince since we've come back from the
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  Speaker 1: Labor Day holidays has been very strong. Last week we
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  Speaker 1: had the busiest week in the junk bond market for
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  Speaker 1: new bonds since June, and this week is also looking
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  Speaker 1: quite strong. UM. This morning we had a one point
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  Speaker 1: seven five billion dollar deal from i MS Health Price
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  Speaker 1: in both dollars and euros. Um, and we have a
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  Speaker 1: number of other companies that may still sell this week.
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  Speaker 1: And you have a number of energy companies that have
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  Speaker 1: been wildly successful at selling debt. Tell us about that
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  Speaker 1: segment of the market and why that might be just
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  Speaker 1: a little bit of a head scratcher. Yes, it's very
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  Speaker 1: interesting actually because some of these debts sales, some of
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  Speaker 1: them have already sold, some of them are still being marketed,
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  Speaker 1: are actually coming as crude has had a bit of
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  Speaker 1: a down week. Um, it's a very i would say
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  Speaker 1: case by case scenario for these companies. PDC Energy which
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  Speaker 1: is a company that sold bonds earlier this week and
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  Speaker 1: did quite well. Um, we'red was doing an acquisition. They
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  Speaker 1: were going to gain some space in the Delaware basin
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  Speaker 1: in Texas, which is a very hot area. From what
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  Speaker 1: people were telling me, um an investors that Another reason
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  Speaker 1: is that some of these companies are refinancing old debts.
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  Speaker 1: So if you're a current bond holder and you still
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  Speaker 1: like the name, a lot of them will just swap
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  Speaker 1: out into the new debt. So, Carl, what is the
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  Speaker 1: risk you talked in your story about PDC Energy and
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  Speaker 1: the fact that it's a credit ratings four levels below
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  Speaker 1: investment grades. Definitely a high yield or a junk bond. Right. Uh,
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  Speaker 1: these what the order book was like three times more
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  Speaker 1: three times as big as the actual offering. So obviously
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  Speaker 1: a lot of demand. Is it a pretty safe risky
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  Speaker 1: bet because well, oil prices created now they've stabilized, you
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  Speaker 1: could say, around or just under fifty bucks of barrel,
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  Speaker 1: So people are saying it's it's it's the it's the
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  Speaker 1: risk return is good here. Yes, So from what I
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  Speaker 1: understand from the people that I talked to, they tell
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  Speaker 1: me that, um, if you're going to go and invest
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  Speaker 1: in one of these names, you're doing so because you
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  Speaker 1: think that this company will still be profitable at this
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  Speaker 1: sort of forty to fifty band Um. We did see
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  Speaker 1: some bankruptcies earlier this year, and some of the large
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  Speaker 1: names like Energy twenty one or lend Energy. UM, but
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  Speaker 1: those are companies that maybe needed support closer to eighty
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  Speaker 1: or a hundred dollars. Is there any chance that people
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  Speaker 1: are going to get stung by buying these high yielding
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  Speaker 1: debt instruments. You never know, especially in the case of oil.
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  Speaker 1: Earlier this year, UM high yield bonds in general were
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  Speaker 1: really heavily correlated with the price of oil, so as
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  Speaker 1: it dropped, UM spreads on high yield bonds widened. And
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  Speaker 1: while that sort of correlation is decoupled some since February,
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  Speaker 1: a lot of people are wondering could this come back,
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  Speaker 1: And if oil keeps falling, that does raise questions about
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  Speaker 1: whether spuds are widen and some investors might get stung.
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  Speaker 1: I want to thank you very much for spending time
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  Speaker 1: with us. Claire Boston is a corporate finance reporter for
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  Speaker 1: Bloomberg News, and her story is Junk bond buyers keep
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  Speaker 1: hunting for yield amid a global market spasm.