When Investments Bankers agree to underwrite leverage in January The return on safe assets such as government bonds from software company Citrix, a group of private equity firms, has been troubling. Yield-hungry investors are desperate for any meaningful returns, something Citrix’s $16.5 billion exchange promises. Lenders including Bank of America, Credit Suisse and Goldman Sachs were happy to offer $15 billion to fund the deal. Central bank officials insist that inflation is temporary. Russia has not invaded Ukraine, energy markets are quiet, and the world economy is growing.
Nine months later, banks are trying to stay in a world where not greed but fear – stubborn inflation, war and recession – sell debt in the market. Struggling to find a taker, they sold $8.6 billion in debt at a discount, resulting in a $600 million loss. They are still maintaining the remaining $6.4 billion on their balance sheet.
The Citrix fiasco is a particularly egregious example of a broader shift in corporate debt markets. After rediscovering their inner Volcker, Western central banks are pushing interest rates to levels not seen in 15 years and shrinking their balance sheets. Those who bought corporate bonds during the pandemic to prevent a wave of bankruptcies have been selling or have sold. All of this is draining liquidity in the market, as investors ditch riskier assets such as corporate bonds in favor of safe Treasuries, which are suddenly poised for significant gains, said Torsten Slok of Apollo, a private asset manager. s return. The result has been a slump in corporate bond prices, especially for companies with poor credit: yields on junk bills have soared to 9.1% in the US and 7.5% in Europe from 4.4% in January and 2.8% in Europe (see Figure 1).