Recently there have been a number of comparisons between financial conditions today and those of Q4 2008. A lot of these parallel that have been drawn are tenuous, but one I do think is relevant is the high-yield primary market.
High yield issuance has been going gangbusters over the last couple of years, setting records in 2009, 2010, and was recently on pace for another record in 2011. However, the latest bout of financial instability has left investors unwilling to allocate fresh money to this sector, reducing the flood of high-yield issuance to a tiny trickle over the last 10 weeks.
Assuming the pace that was observed from January through the end July of this year were sustained, there is approximately $65B in 'missing' issuance. Making the further assumption that high-yield corporations have a marginal propensity to spend which approaches 1, this 'missing' issuance represents as much as .5% of annual GDP. With government expenditure set to contract in 2012, any marginal reduction in private investment is not a welcome sign for the economic recovery. Let's hope this market thaws sooner rather than later.
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