While the broader markets have flinched at every political tremor, the world of risky debt is acting like almost nothing’s wrong.
The market for triple C bonds — debt that’s deep into junk territory — is thriving. Companies are seeking new leveraged loans at a clip. Some deals have been so popular that banks are reducing borrowing costs, while others have hastened financing deadlines as they capitalize on robust demand.
The resilience underscores the persistent hunt for yield amid expectations that interest rates will remain flat or fall modestly later this year. With some fundamentals in the economy — such as consumer spending — remaining strong, investors are pouring capital into the riskiest corners of the credit market, betting corporate cash flows will remain steady even if the political climate does not.
“It comes down to a lot of comfort that the consumer is resilient,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights Inc. “Investors are still willing to stay at the party until the last bit of punch is consumed.”
Appetite for risk persists despite the gauntlet of political shocks that now includes the threat of criminal indictment against Federal Reserve Chair Jerome Powell, a dramatic escalation of the Trump administration’s attack on the institution. Markets are also navigating the fallout from the ouster of Venezuelan leader Nicolas Maduro as well as the continuing conflicts in Ukraine and the broader Middle East.
As “Sell America” sentiment rippled through markets on Monday on the Powell news, pressuring the dollar, Treasuries and US equities futures, the US leveraged loan market had its busiest day by volume since July, with some $35 billion of deals launched.
And earlier this month, just after Maduro was captured by the US, the market for high-yield bonds had its biggest first full week of issuance since at least 2020, with companies issuing about $10 billion.
The sales included Six Flags Entertainment Corp.’s $1 billion offering. The bonds, rated CCC — a grade that signifies a high risk of default if conditions worsen — drew orders more than seven times the deal’s size as the company sought to refinance debt at lower rates. Motor lubricant producer Calumet Specialty was able to borrow more than planned at lower rates amid strong demand.
“Last year, spreads on well-loved credits were grinding tighter and tighter, but you had some out-of-favor sectors that were almost treated by the market like they were untouchable. They’re getting more traction this year,” said Jeremiah Lane, co-head of global leveraged credit at KKR & Co. Inc. “There’s a little bit more breadth to what people are embracing right now.”
Spreads on a basket of CCC bonds hovered around the lowest level since October while yields were close to 12 month lows. The sentiment was similar in Europe, where triple C-rated bonds posted returns of 1.75% for the month-to-date, compared with minus 2.1% for 2025. Spreads have also tightened, from around 1000 basis points at the start of the year to just under 960 on Tuesday.
With US Treasury yields cooling off and the potential pace of further Fed cuts in question, borrowers in the market for leveraged loans — which track benchmark rates — are likely viewing this as potent window to swap out more expensive debt or fund new buyouts.
A jumbo deal last week did exactly that: A group of banks kicked off a roughly $7 billion leveraged loan sale to help fund the buyout of Hologic Inc., one of the biggest acquisition financings expected to hit the market in the coming months for junk-rated borrowers. The loans backing Blackstone Inc. and TPG Inc.’s acquisition of the medical device-maker received so much demand that banks accelerated the commitment deadline and slashed the pricing.
“There’s just a massive demand for yielding instruments,” said Wayne Dahl, a co-portfolio manager of global credit and global credit investment grade strategies at Oaktree Capital Management.
CompoSecure, a company that manufactures high-end metal payment cards, last week raised $1.2 billion through a term loan to refinance existing debt. Interest was strong enough to upsize the deal by almost $200 million, while borrowing costs shrank from early discussions.
Other buyout financings that have hit the market this year include a loan supporting private equity firm Lone Star Funds’ takeover of equipment maker Hillenbrand Inc. and an offering to help fund Apax Partners’ buyout of a Finastra Group Holdings Ltd. unit.
Despite recent signs of economic health, there are indications of underlying fragility. The US labor market’s slowdown continued with employers adding fewer jobs than expected in December, capping a year of cautious hiring and limited layoffs. As investors increasingly pile into riskier debt, they should check they’re well protected should things deteriorate, according to CreditSights’ Griffiths.
“Keep an eye on underwriting standards and covenants,” he said.
With assistance from Gerson Freitas Jr. and Gowri Gurumurthy.
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