Congrats To Jay Powell! June Junk Bond Bonanza Shatters All-Time Record

Congratulations are in order for Jerome Powell.

As of Tuesday, June 2020 is enshrined in the history books as the biggest month for junk bond issuance ever.

That’s right, folks. Thanks in no small part to the Fed backstop for the US corporate credit market, companies sold more junk bonds in June than any other month in recorded history. The one-month total is now $46.7 billion, besting the previous record of $46.4 billion set nearly seven years ago.

Perhaps just as notable, 2020 boasts three of the top ten months for high yield debt sales.

On one level, this isn’t surprising. Companies need cash, after all. But the Fed’s corporate credit facilities are what made it possible for so many borrowers to retain market access during the worst economic downturn in a century.

The latest milestone will doubtlessly engender more wailing from the moral hazard crowd, whose lamentations persist three months on from the day the Fed first unveiled plans to backstop the market.

Last week, investment grade supply for 2020 topped $1.13 trillion, meaning this year has already eclipsed 2019 for blue chip US debt issuance.

Inflows into corporate credit have been robust as market participants look to front run and invest alongside the man with the printing press. On Lipper’s data, high yield funds have enjoyed a dozen consecutive weeks of inflows.

Of course, the Fed isn’t indiscriminately buying junk, but Powell is backstopping fallen angels, and two of the most popular high yield products on the market (HYG and JNK) are part of the Fed’s ETF holdings.

As of May 19, about 17% of that portfolio was in junk bonds (the full breakdown is here).

Last week, the Fed said it was moving ahead with purchases of individual issues, much to the market’s delight.

High yield spreads, which crossed into distressed territory in late March, have come in markedly (figure). Borrowing costs for IG borrowers are near record lows.

The supply bonanza should abate in the back half of the year, now that corporates have bolstered their cash positions.

In any case, the above is quite something, especially when you consider it comes courtesy of a man who, when he took the reins from Janet Yellen, was widely celebrated by Fed critics as the guy who would get the job done when it came to restoring discipline and allowing price discovery to reassert itself.

How’d that work out?

Read more: The US Corporate Bond Market Just Keeps Smashing Records

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2 thoughts on “Congrats To Jay Powell! June Junk Bond Bonanza Shatters All-Time Record

  1. From Milken’s perspective, handing over the “Junk Bond King” title to Powell might be better than his recent clemency

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