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Strategies & Market Trends : The Financial Collapse of 2001 Unwinding -- Ignore unavailable to you. Want to Upgrade?

To: ggersh who wrote (441)	8/23/2017 4:31:43 AM
From: elmatador	Read Replies (1) \| Respond to of 13775

Tesla’s bond hit by US junk market jitters The $1.8bn bond sold by the electric car maker is among those bruised by junk weakness YESTERDAY by: Eric Platt Tesla’s high-profile junk bond is among corporate debt coming under pressure, as signs that investors are adopting a more defensive outlook cools the $1.3tn market for the riskiest US corporate borrowings. The $1.8bn of eight-year bonds sold by the US electric car maker have fallen in value since they were sold earlier this month. It has accompanied a drop in the price of debt sold by US office supplier Staples and lacklustre demand for a new bond sale from ClubCorp, which forced the company to pay up to lock in its financing. While junk bonds have enjoyed a stellar run since the financial crisis, a mix of fears over central bank tightening, fading hopes for a US economic stimulus package from Donald Trump and weakness in the stock market has unnerved some money managers. The premium investors demand to own high yield bonds instead of Treasuries has climbed 39 basis points so far in August to 400 basis points, according to Bank of America Merrill Lynch. That matches the highest spread between the two since April. “There is a nervousness towards risk and nervousness towards credit,” said Andrew Brenner, head of international fixed income at National Alliance. “I don’t think it’s over yet. We’re not talking recession or bankruptcies, but we got ahead of ourselves and we got ridiculously tight for spreads.” Several prominent asset managers have raised red flags over credit valuations in recent weeks, including DoubleLine chief executive Jeffrey Gundlach. Former Federal Reserve chairman Alan Greenspan also warned of a potential bond bubble this summer. At the same time, the S&P 500 has fallen nearly 2 per cent after touching a record high this month. The so-called spread on Tesla’s eight-year notes has widened to 343 basis points from the 320 basis points at which they were sold. Although the debt, which has been among the most actively traded high-yield bonds, enjoyed a modest gain yesterday and was quoted at 98 cents on the dollar, according to Interactive data, it remains below par. Bonds sold by Staples — a $1bn deal completed earlier this month —, traded on Tuesday at 96.59 cents on the dollar, down from their pricing at 100 cents on the dollar. “Both are trading substantially below par,” John McClain, a portfolio manager with Diamond Hill, said of the Tesla and Staples bonds. “You have some high profile new issues that have struggled on the break and that gives investors in the market a bit of pause.” Mr Brenner of National Alliance added that the Tesla deal “priced at the top of the market”. Despite an uptick in volatility in equity markets, Mr McClain said volatility in the junk bond market remained relatively subdued. Fresh supply of corporate bonds is also expected to dwindle, as portfolio managers and bankers head on their holidays, which could provide some support to the market. While global investors have shown a preference for US fixed income securities this year, as central banks abroad ease and trillions of dollars worth of European and Japanese sovereign bonds trade with a subzero yield, they have not fully embraced riskier junk bonds. High yield US bond funds have counted more than $7bn of redemptions this year, according to Wells Fargo and EPFR. eric.platt@ft.com Twitter: @ericgplatt