The first half of 2011 was a promising period for high-yield bankers and investors. There was a record $150bn of issuance in the US dollar-denominated market. Euro deals, which totalled about €40bn, were also being churned out faster than ever. Spreads were tightening and junk bond buyers were making big gains.
But from mid-June, the market took a severe turn for the worse amid renewed fears over the state of eurozone banks and a slowdown of economic growth in the Western world. Only nine euro-denominated high-yield bonds, totalling just €3.5bn, were priced in the third quarter. Spreads for European BB corporate paper widened by 386 basis points (bps) – almost 100% – between June 1 and September 30, according to BNP Paribas. In mid-October, European high-yield funds experienced their 11th straight week of outflows and had lost 22% of their assets since early June, says research by Bank of America Merrill Lynch (BAML).
