9 hrs ago
Goldman Warns High-Yield Bond Surge Is Overwhelming Investors
Companies are selling many bonds to borrow money.
Investors are having trouble absorbing all these new bonds at once.
This is especially true for riskier high-yield bonds.
Goldman Sachs says the extra return investors want for holding these bonds has increased.
A very large Paramount Skydance borrowing plan is adding to the pressure.
Higher interest rates are also making investors more cautious.
Some investors still like corporate bonds because they offer attractive income.
Goldman says artificial-intelligence projects have also created a large amount of new borrowing.
US high-yield bond issuance reached $38.51 billion in September by Friday, the market’s busiest month this year.
Goldman Sachs strategist Amanda Lynam said heavy supply is causing market “indigestion” and widening risk premiums.
Average high-yield spreads widened 12 basis points to 294 basis points, their highest level since April.
Paramount Skydance is seeking about $44.4 billion through investment-grade and high-yield bond offerings this week.
Goldman estimates nearly $600 billion of this year’s debt supply has been linked to artificial-intelligence initiatives.
- Who
- Goldman Sachs strategist Amanda Lynam, corporate issuers including Paramount Skydance and SoftBank Group, and US corporate-bond investors.
- What
- A surge in corporate bond issuance is widening credit spreads and testing investors’ ability to absorb new debt.
- Where
- The US corporate bond market.
- When
- The developments were reported Monday, with September issuance measured through Friday and Paramount’s offerings planned for this week.
- Why
- Heavy new supply, rising bond yields, and greater rate volatility are pressuring credit spreads and investor confidence.
Market Caution
Yield Opportunity
Effect of heavy issuance
Market Caution
Goldman Sachs said the volume of new bonds is causing market indigestion, widening spreads and forcing investors to reprice risk.
Yield Opportunity
Allspring trader Mark Clegg said the Paramount deal could be well received and restore confidence, potentially reopening the market for issuers waiting on the sidelines.
Higher interest rates
Market Caution
Goldman Sachs warned that higher rates and rate volatility could reduce investors’ confidence to deploy capital in corporate credit.
Yield Opportunity
Higher bond yields have made corporate bonds more attractive to yield-focused buyers, providing continued demand.
Key facts
- September high-yield issuance
- $38.51 billion through Friday, the busiest month of the year so far
- Average high-yield spread
- 294 basis points, up 12 basis points and the highest since April
- CCC-rated spread
- 968 basis points, the highest since November 2023
- Paramount Skydance planned borrowing
- About $44.4 billion in investment-grade and high-yield bonds
- SoftBank offering
- A $10 billion high-yield bond deal
- Average high-grade spread
- 80 basis points after widening 3 basis points
- AI-related debt supply
- Nearly $600 billion across debt markets this year, according to Goldman Sachs
Quotes
Amanda Lynam
Goldman Sachs chief credit strategist
“At what level does higher rates volatility reduce the confidence of investors to deploy in corporate credit? That’s been such a really strong tailwind in keeping spreads anchored. So that’s what we’re watching most closely.”
livemint.com
“The market’s bracing for the same sort of episodic indigestion that we’ve seen in the investment grade market earlier in the summer. You’re seeing that in high yield.”
livemint.com
Sources
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