One of the consequences of last year's junk bond blowup was, unsurprisingly, a dramatic decline in high yield gross issuance. The numbers were pretty stark. According to SIFMA, high yield gross issuance in Q1 was 60% less than Q1 2015, following Q4 which was 47% below Q4 2014. As the market has come back since March, for all sorts of reasons including Mario Draghi, issuance has, as well – but not to the same sort of condition as before. In other words, volume is only relatively better than the worst months.
Gross junk issuance in June 2016 is figured to have been $24 billion, higher than the $21.7 billion in June 2015 but significantly less than the nearly $30 billion floated in June 2014. These tough comparisons underscore the nature of not just the depth of market effects but really the prolonged period of irregularity. For Q2 overall, junk bond issuance was still 8% less than the same quarter in 2015. Again, that is better than the near-collapse of Q1, but not anything like full restoration let alone making up for a lost year.
From the annual figures, you can clearly see that junk bonds have struggled since 2013. The “rising dollar” hasn't been kind to this part of the credit market, an obvious economic problem given that huge burst in issuance starting in 2012 offered at least some marginal (artificial) support to the economy. As issuance slowed in 2014, especially later in that year, it is likely more than coincidence that seemingly steady and slow economic growth gave up to slow and steady contraction especially in manufacturing and industry.
But as much as junk bonds are (rightly) emphasized, it may be that investment grade corporate issuance suggests the next stage of destabilization in credit. Since last summer, IG volume has also dropped off. And though the estimated gross for May 2016 was the highest in years, overall in Q2 total issuance was down slightly compared to Q2 2015 when 10-20% growth in IG volume had become seemingly normal. With three consecutive quarters now of below-trend totals, it seems reasonable to assume that there are deeper corporate credit problems than just the junk bubble.
