JPMorgan Chase & Co., the largest underwriter of junk bonds, boosted its forecast for sales of the high-yield, high-risk debt this year to match the record issuance reached in 2010.
JPMorgan increased its forecast to $300 billion from $225 billion as high-yield issuance in the first quarter reached a record $106 billion, the analysts led by Peter Acciavatti wrote in a March 30 report. The biggest U.S. bank estimates sales will rise as demand increases among retail investors for the debt that’s returned more than twice as much as investment-grade bonds this year.
The Federal Reserve, which has held the benchmark interest rate at zero to 0.25 percent since December 2008, has pledged to keep it near zero through at least late 2014, pushing down borrowing rates and driving investors to higher-yielding assets. Sales of global bonds reached a record $1.17 trillion in the three months ended March 31 as an easing in Europe’s debt crisis has bolstered confidence that default rates will stay below the historical average.
“The first quarter has been accompanied by falling market volatility and unusually conducive macro conditions for issuers,” Acciavatti, based in New York, wrote in the report. “The more important takeaway from all of this supply is the continued focus on refinancing bond and loan facilities, which continues to keep net supply within the confines of demand while also serving to anchor medium-term default expectations.”
High-yield bonds have returned 5.15 percent so far this year, according to Bank of America Merrill Lynch index data. Investment-grade bonds have returned 2.44 percent over the same time period, the data show.
Junk bonds are rated below Baa3 by Moody’s Investors Service and under BBB- by Standard & Poor’s.