Junk demand – Newspaper Kommersant No. 62 (7507) dated 04/11/2023

The high-yield bond market is recovering faster than analysts expected. The volume of issues placed in the first quarter approached the average of the peaceful 2021. In addition, the duration of placements and profitability decreased significantly. However, the segment is characterized by increased risks, including poor quality of disclosed financial statements and dependence on refinancing opportunities.

According to Ivolga Capital (Kommersant has read the review), the volume of placed high-yield bonds (VDO) for the first quarter of 2023 amounted to 8.8 billion rubles. This result not only exceeds the figure for the first quarter of last year, but also the placement volume for the next three quarters (8.1 billion rubles). Since the beginning of the year, sales of almost two dozen bond issues have begun.

Recovery, analysts say, happened much faster than market participants expected (see Kommersant of January 16). In fact, at the beginning of the year, the segment returned to primary market volumes comparable to 2021. Then, according to Cbonds, the volume of VDO placements amounted to 44 billion rubles, i.e. an average of 11 billion rubles. per quarter (excluding seasonality).

At the same time, analysts observe a decrease in the duration of placements. If in 2022 issues even with high coupons could be placed for a month or two or even several months, now the average period has shifted to a range of two to four weeks. This happened against the backdrop of lower rates, especially in the rating category B. Last year, the return on placements in this segment was 19–20% per annum, by now it has dropped to 16% per annum. One of the features of the first quarter is the consolidation of large investment banks among the organizers of VDO, Ivolga Capital notes.

Market participants interviewed by Kommersant explain the positive dynamics in the VDO segment primarily due to the stabilization of the situation in the Russian economy. In addition, there has not been a single default in the VDO segment since the beginning of the year, and due to the absence of a negative news background, the sector seems attractive to many. In the corporate bond market, after last year’s turmoil, there is a tendency for credit spreads to return to their average historical values. If a year ago it was possible to buy securities from the second tier with a very good yield, now there are no such attractive prices there, and investors are turning to more high-risk instruments, says Alexei Kozlov, an analyst at FG Finam.

As a result, the risk premium in corporate papers in general and in the VDO sector in particular has significantly decreased, Alexander Shurakov, a leading analyst of the debt market at Otkritie Investments, added. If in the third and fourth quarters of 2022 the average premium to OFZ on the Cbonds-CBI RU High Yield index was 785 bp. n. and 733 b. p., then in the first quarter of 2023 it decreased to 574 b.p. In early April, the risk premium dropped below 500 bp. p., thereby reaching the level of risk premiums typical for 2021, the expert notes.

Experts note that the main investors in the VDO segment are individuals. That is why, according to the head of the DCM department of the corporate finance department at Tsifra Broker, Maxim Chernega, the segment recovered longer than others – many investors left for less attractive, but more reliable securities.

Experts believe that the main risk of investing in VDO is the quality of the reporting provided. Igor Galaktionov, an expert on the stock market at BCS Mir Investments, also attributed economies of scale (most issuers from SMEs) and high dependence on refinancing opportunities to risks. Aleksey Kozlov points out that in the VDO segment, the realization of any significant risk can lead to a default – reduction of bank limits, withdrawal of key consumers, problems with the tax service, lawsuits, etc. According to the results of the year, according to Tsifra Broker , up to five defaults can be announced in the segment, up to 10 defaults are expected in Finam.

Ksenia Kulikova