Investors squeezed in market melt-up
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Investors squeezed in market melt-up

From a journalist’s point of view it is very refreshing to be writing about investors pouring into a market and achieving more than 50% returns year to date – it feels quite like old times. But the performance of the high-yield bond market in recent months has also brought back some other rather uncomfortable memories.

Credit markets: Reversal of fortune

William Healey, Picus Capital

"Senior lenders used to be stroppy about high yield but there are going to have to be renegotiations"

William Healey, Picus Capital

"Cash balances keep building, so high-yield bond funds are being clobbered on a relative return basis," explains William Healey, chief executive officer at Picus Capital in London. "People can’t sit on the cash any longer. They have got to get yield because the index is killing them." This has led to inevitable accusations of herd behaviour and lack of due diligence. Certainly the performance of some recent deals has been quite striking. Fiat recently came to the market with two drive-by deals, one three-year and one five-year. The three-year deal was launched at 99.36 to yield 9.25% and 55 days later was bid at 107 to yield 5.95% – a tightening of 330 basis points. The five-year was launched at 99.49 and was bid at 102.5 just three days later. "The market has been in melt-up because of dealer desks building inventory," observes Healey.

Barrie Whitman, head of high yield at Threadneedle Investments in London, explains that the high-yield market has rallied so strongly because of the forced deleveraging that drove it to unprecedented lows in 2008.

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