Fitch Ratings-New York/Chicago-20 July 2022: Sharply higher interest rates and capital market volatility will weigh on US non-financial corporate debt issuance through 2022, says Fitch Ratings.
Record issuance in 2020 and 2021 to refinance high-cost obligations and increase liquidity during the pandemic provides many companies with flexibility in issuance timing and some capital allocation discretion.
Fitch’s economic team expects the policy interest rate to increase to 3.5% by 1Q23 from 0.25% at YE 2021. The ICE BofA US High-Yield (HY) Index Option-Adjusted Spread rose to 5.87% at June 30, 2022 from 3.10% at Dec. 31, 2021, according to the Federal Reserve. Coupons for the ‘A’ and ‘BBB’ rating categories averaged 4.4% and 4.6% in 2Q22, respectively, up from 2.5% and 2.5% in 4Q21.
HY and investment-grade corporate debt volume declined significantly in 1H22 compared with 1H21. HY bond issuance fell 78% to $61 billion in 1H22, compared with 1H21, and is down 49% from the $119 billion issued in 1H19. July 2022 HY issuance is exceptionally weak with just two deals pricing for $1.1 billion, while 2022 volume is on pace to be the lowest since 2008. YTD mutual fund outflows of $34 billion underscore investor pullback in demand.
https://www.fitchratings.com/researc...ise-20-07-2022