This year has been an interesting one for corporate bonds, and here are some findings from the Risky Finance visualisations of Markit iBoxx data.
So far in 2021, about $540 billion of new debt has been added to iBoxx corporate bond indices, which is a far cry from the $1.8 trillion issued in the face of the pandemic last year. But the proportion of riskier high yield bonds has rocketed, while many investment grade companies have reduced their debt this year, resulting in lower net issuance. After allowing for redemptions, one in two bonds added to the indices this year have been below investment grade. In 2020, the proportion of high yield bonds was just 21%.
The top junk-rated borrowers include T-Mobile USA, issuing $9 billion of debt to finance its push into 5G networks, followed by Clear Channel Outdoor, with its $6.5 billion borrowing to fund a post-pandemic bet on advertising. In Europe, there’s Spanish telecoms company Cellnex, whose $5.3 billion bonds issued this year are helping to drive an aggressive acquisition strategy that includes UK mobile phone towers.
Junk bond credit spreads have fallen from their pandemic peak in March 2020, but are still above pre-Covid levels. However rising stock prices have put a lid on any credit concerns, and the borrowing binge continues.
The slow but inexorable default of Evergrande and its subsidiaries has seen $28 billion of dollar-denominated Chinese real estate debt removed from the iBoxx indices by the end of September. Since then, other companies remaining in this sector have been toppling like dominoes. Offshore bonds issued by property companies such as Fantasia Holdings and RongXingDa Development were trading at below 50% of their face value on 30 September. By 7 October, Fantasia had defaulted, and its $3 billion of iBoxx-listed bonds were priced at 21 cents in the dollar. The contagion has spread to investment grade issuers like Country Garden, exposed to Fantasia, whose spreads widened by 150 basis points in a week.