Lost in Translation

2018 ended in the high-yield loan and bond markets not with a bang, but with an olufsen. That’s our rendition of “whimper,” borrowed from the Danish audio products company. There are signs 2019 might be off to an upbeat start. But there are contrary signals as well.

Volatility caused by rate and trade concerns held fast as secondary prices tumbled in December. That caused a complete cessation in junk issuance – a happenstance that last befell markets in the midst of the credit crisis a decade ago.

In the case of leverage lending, deals in market mostly got done, although with spread or terms concessions. Opportunistic refinancings were generally shelved. The year ended with cash outflows from retail loan funds of a whopping $12 billion for the prior six weeks.

Early January continued that trend. Last week saw another $2.3 billion departing accounts. That’s left CLO’s as the prime demand drivers for broadly syndicated loans. As a supply/demand matter, though, loan analysts pointed to over $10 billion of CLO warehouses being ramped to offset those outflows.