OREANDA-NEWS. The pace of issuance in the U.S. high yield bond primary market continues to be slow in sharp contrast to the investment-grade market. The slump in issuance is likely reflective of a combination of factors including the recent decline in energy commodity prices, uncertainty in global growth due to the China stock selloff and the likelihood of Federal Reserve action, according to Fitch Ratings.

Some issuers have pulled deals while lower rated issuers have been forced to pay higher premiums in order to complete transactions. Investors are seemingly more risk averse this quarter, a far cry from the first half of 2015 which produced a record \\$168 billion in high yield bond volume.

July issuance totaled a mere \\$7 billion, the lowest monthly issuance of 2015. High yield bond volume throughout the summer has remained muted, registering only \\$20 billion in June.

In July, Prime Healthcare pulled its planned \\$700 million deal while Stahl International BV cited poor market conditions when shelving its \\$600 million term loan. The loan backed a dividend recap and had price talk of 400 bps with a discount of 99.5 bps.

Challenging market conditions in the energy and metals/mining sectors has likely had a negative impact on volume. Energy accounted for \\$28.1 billion of issuance in the first half of 2015, for an annualized issuance of \\$56.2 billion. In June and July, energy issuance stood at \\$3.7 billion, an annualized issuance of only \\$22.2 billion.

The TTM (trailing 12-month) July energy default rate is 2.5% while the metals/mining rate is 7.1%. The recent filing by Alpha Natural Resources will send the trailing 12 months metals/mining rate to 10%. The overall TTM July high yield default rate is currently 2.5%.

Despite the pace, we believe borrowing conditions remain favorable for a majority of U.S. high yield issuers. Interest rates are still near historically low levels while refinancing and mergers and acquisition activity continue in earnest.