Pension funds and other institutional purchasers are also seeking to do more personal lending to companies as a method of diversifying the riskier part of their portfolios away from speculative-grade bonds, Cernicky said. There’s been a “significant increase” in demandsask for such arrangements among Japanese and European customers, he said.
“They’re reducing high-yield exposures and going into private credit, illiquid credit or personal financing,” he stated. “You get a similar type of return, however you get no mark-to-market volatility.”
The shift has actually come amid a reduction in junk bond sales this year, with brand-new issuance in the United States 19 percent less than at the same point in 2015, according to information compiled by Bloomberg. Cernicky is tipping that to reverse next year, with energy, metals and mining companies leading the charge in the world’s most significant non-investment-grade note market. He also anticipates more industrial business to make their debut in the European scrap bond market next year.
“The story in 2017 is likely going to have to do with high-yield issuance, not a lot the IG issuance,” he stated. “In Europe, you see a great deal of brand-new business entering the marketplace which is in fact quite favorable.”