NEWS
Federal Reserve sparks record high yield bond issuance Low interest rates are producing a speculative bubble in high-risk credit
T
his month is on track to be the busiest June on record for the issuance of dollar-denominated high yield or ‘junk’ bonds, with almost $24 billion of bonds priced by the middle of the month. This follows a record level of issuance in May, as corporate borrowers continue to flood the market after the US Federal Reserve admitted that any increase in interest rates was ‘years away’ and that it would include high yield bonds in its credit buying programme to help ease liquidity fears in markets. Up to mid-June, issuance for the year to date was up more than 50% on 2019 at more than $175 billion despite the poor economic outlook
for the global economy for the second half of this year. Meanwhile, with little to no yield on government bonds or stocks, big investors are only too happy to soak up as much paper as companies can issue, pushing prices up and yields to record lows even though high yield or ‘junk’ debt is the lowest investment grade and carries the highest risk of default. It isn’t just US and foreign institutions attracted to this high-grade issuance. According to Lipper, domestic retail funds investing in US high-yield bonds recorded more than $5 billion of inflows in the first week of June, the 11th successive week of inflows.
Gear4music is back in a profitable groove The online musical instruments seller has seen ‘exceptionally strong trading’ during lockdown SHARES IN ONLINE musical instruments retailer Gear4music (G4M:AIM) rallied 21.1% to 387.5p after the York-headquartered company reported (23 June) a ‘strong return to profitability’ for the year to March 2020. This expunged doubts that Gear4music couldn’t achieve the operational improvements promised in 2019 and also provided a rare bit of upbeat news for the hard-pressed retail sector. Boosted by increased interest in music during lockdown,
Gear4music’s revenue grew 9% to £120 million last year and the online specialist swung from a loss to a better than expected profit thanks to strong gross margin gains and cost efficiencies. N+1 Singer’s retail analyst Matthew McEachran also highlighted a welcome pivot from cash burn to cash generation and upgraded his March 2021 earnings estimates
following the well-received numbers. ‘With an increasing number of people throughout the Covid-19 lockdown recognising the benefits that playing, creating and recording music can bring, we have seen a significant increase in demand during this exceptional period,’ enthused chief executive Andrew Wass. He added that the company has also witnessed an ‘exceptional and sustained increase in demand’ for its products over the first quarter of its new financial year.
25 June 2020 | SHARES |
9