High-yield bonds: Returns are there for a reason

The strength of the rally in high yield was underscored by two key transactions at the end of last year. First, Liberty Global financed its recent €3.5 billion buyout of German cable firm Unitymedia entirely in the high-yield bond market. And just before Christmas Wind Telecomunicazioni priced an audacious €750 million PIK note – the largest since 2007. But the reception with which both deals were greeted has rung alarm bells among those in the market worried about overshoot.

Liberty Global’s €2.66 billion senior secured bonds, issued in euros and dollars, attracted €10 billion of orders despite some scepticism beforehand that the deal was too ambitious at this stage in the market’s recovery. But its reception proves that the incredible rally the high-yield market enjoyed in 2009 looks set to continue into 2010.