Leveraged Finance Markets Roar Back to Life in 2024

The high-yield bond and leveraged loan markets have experienced a dramatic resurgence in the first half of 2024, with issuance volumes soaring and spreads tightening to 15-year lows. According to Brian Tramontozzi, JP Morgan’s North American head of Leveraged Finance Capital Markets, this rebound is driven by a confluence of favorable factors.

"It's been a fantastic year so far for leveraged finance," Tramontozzi said during an appearance on JP Morgan’s What’s the Deal podcast.

High-yield bond issuance has reached approximately $150 billion so far in 2024, double the volume seen during the same period last year. Similarly, the leveraged loan market has witnessed a staggering 400% increase in borrowing, with year-to-date volume reaching $640 billion compared to $125 billion in the first half of 2023.

Tramontozzi attributes this surge in activity to a combination of robust investor and lender cash balances, fueled by strong inflows into high yield bond and leveraged loan funds, and a relatively healthy economic backdrop with moderating inflation.

A significant portion of the activity has been driven by refinancing, with 85% of high-yield bond and leveraged loan issuance dedicated to this purpose. This dynamic, Tramontozzi explains, reflects borrowers capitalizing on strong secondary market performance to reduce interest expenses.

Looking ahead, Tramontozzi acknowledges the potential for market conditions to shift. He points to the significant volume of leveraged credit maturities expected through the end of 2027, approximately $1 trillion, as a potential catalyst for spread widening.

"Market conditions are very supportive for companies looking to refinance near-term maturities," Tramontozzi said. "When more new money financing comes, it’s not unreasonable to expect spreads to widen. Maybe not fully to the long-term mean but it’s certainly a risk."