(Bloomberg) -- The U.S. high-yield bond market is showing signs of life, with the first two borrowers in weeks looking to price deals amid indications of improved investor interest.
Twitter Inc., the social media giant, is seeking to raise $1 billion through the sale of eight-year unsecured notes rated Ba2/BB+, in part to help finance a share buyback. BellRing Brands, a protein shake maker, began marketing $840 million of 10-year notes to finance its spinoff from Post Holdings.
The offerings constitute a re-opening of sorts, as companies have avoided the market since early February. One reason was that the Federal Reserve’s prospective rate increases were raising borrowing costs; then came the heightening of Russia-Ukraine tensions, which led to speculation any conflict will further increase inflation and Fed hawkishness.
Bets on a 50-basis-point bump in rates from the Fed next month are rising. Meanwhile, President Joe Biden enacted sanctions on Russia, and is likely to expand them.
But for all the economic and geopolitical risk stirring up markets, some see opportunities in junk bonds.
Investors have slowed cash withdrawals from high-yield retail funds, after pulling almost $17 billion in a six-week stretch. Outflows moderated to $44 million at Friday’s close after more than $2 billion in outflows in five of the last six weeks, driving the total to $16.7 billion, JPMorgan wrote, citing Refinitiv Lipper.
The U.S. investment-grade market is also back in action Wednesday after at least five companies stood down Tuesday -- another indication of investor interest.
And while the risk premium in junk is rising and returns have been negative this year, Winifred Cisar, global head of strategy at CreditSights Inc., still sees market access for speculative-grade bonds.
“We’ve already hit the all-time low point in yields in both investment grade and high yield,” Cisar told Bloomberg TV on Wednesday. “We don’t think the move in yields has become a threat to either investment grade or high yield quite yet. Companies can still borrow at very low levels.”
Elsewhere in credit markets:
U.S. high-grade companies returned to the market Wednesday during a rare window of relative calm as 11 borrowers including Wells Fargo & Co. and Archer-Daniels-Midland Co. rushed in to sell debt.
- Twitter’s finacial flexibility is greater than its ratings suggest, and the company remains on a course toward a high-grade profile, according to an analysis by Bloomberg Intelligence
- Venture-lending specialist Hercules Capital Inc. originated a record number of investments last year through its business development company, but also a record total number of exits on assets, the firm said on its quarterly earnings call on Tuesday
- Plans for a $200 million loan for Marfrig Global Foods SA have fallen apart amid growing concern that Brazil’s second-biggest beef producer is fueling deforestation in the Amazon
- A Mexican affiliate of Kimberly-Clark Corp. that sold hand sanitizer made with a toxic, industrial form of alcohol filed for bankruptcy, blaming the mistake on a scramble to find ingredients early in the pandemic’s supply-chain meltdown
- General Electric Co. sees rising raw-material and logistics costs exceeding its ability to increase prices to customers, though the price-cost relationship should improve in the second half, Chief Executive Officer Larry Culp said at a Citigroup investor conference
- For deal updates, click here for the New Issue Monitor
- For more, click here for the Credit Daybook Americas
As oil and gas prices surge with escalating tensions over Ukraine, European power firms are rushing to lock in their cheapest borrowing costs since before the Covid pandemic.
- Europe’s primary market activity picked up on Wednesday with a flurry of potential sales, after just a single deal on Tuesday. Ten issuers expect to raise a minimum equivalent to 5.85 billion euros.
- The Free State of Thuringia, Argenta Spaarbank NV, and Kommunalkredit Austria AG have started marketing deals that were in the pipeline
- And at least six others including Agence Francaise de Developpement, ALD SA, Credit Mutuel Home Loan SFH SA, Deutsche Bahn AG, NatWest Markets Plc and Unilever Plc surprised the market with new issues
- Also, Vonovia SE has mandated banks to arrange investor calls to present its new sustainable finance framework
Activity picked up slightly in Asia’s primary dollar bond market on Wednesday, with Chinese companies dominating the scene.
- Quzhou State-Owned Capital Operation Co., CDB Leasing International and China Merchants Bank Sydney are among those tapping the market
- And at least four other Chinese firms have announced new mandates including a green bond for Hubei United Development Investment Group Co. Ltd., and a USD issue for Huatai Securities Co.
- Meanwhile, Thailand is seeking pitches from banks for a dollar bond offering in the range of $500 million to $1.5 billion
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