Fixed income investors may have stopped buying up expensive high yield bonds regardless of risk, according to TwentyFour Asset Management.
High yield has become a popular asset class among investors hunting for income in recent years, with firms increasingly issuing debt at lower and lower yields, knowing the demand will still be there.
But Gary Kirk, portfolio manager at TwentyFour, said since the middle of June, investors had become more concerned about expensive new high yield bond issues.
“We now seem to have reached a transitional point in the cycle,” said Mr Kirk.: “There has been a noticeable change with investors showing reluctance to support ever-tighter deals.”
Mr Kirk said the change in sentiment was apparent from the failure of French firm Winoa to drum up enough support for a bond issue this morning.
Investors had demanded a high coupon due to the macro backdrop and the company’s restructuring in 2013 but Winoa refused to pay such a yield and the issue was postponed.
Mr Kirk said: “Earlier in the year we are sure this deal would have enjoyed a successful launch, but clearly the synergy of borrowers meeting overwhelming investor demand has now peaked.”
The change in sentiment comes at a time when bond markets are going through an “intense lack of liquidity”.
Managers had said that the huge demand for bonds would continue to support the markets for now, but if that demand slows then liquidity could become a problem.
