by Ben Rooney
A French telecommunications company just pulled off the largest sale of junk bonds in history.
It's the latest indication of how strong the appetite for high-yield bonds is.
Numericable (NUM.PA), which provides cable and internet service in France and other European markets, sold a record amount of high-yield bonds Wednesday with some priced in dollars and others in euros.
It's sold $7.78 billon and €2.25 billion in notes that yield 5% or more, according to a statement from Altice, the multinational telecom group that owns Numericable.
At the same time, Altice issued $2.9 billion and €2.1 billion in bonds that yield more than 7%.
Numericable will use the proceeds to finance its acquisition of rival cable company SFR.
Overall, the deal represents the largest sale of high-yield debt on record, according to Dealogic. It surpassed Sprint's $6.5 billion debt sale in September.
Despite the record size of the sale, demand for the bonds appears to have been robust.
Numericable had initially planned to sell just €6 billion worth of debt, but was ultimately able to expand its offering.
In an even better sign for Numericable and the wider bond market, the company was able to sell the bonds at lower yield levels than previously expected, according to a report from Societe Generale.
"Clearly, the appetite for high yield is far from waning," the report states.
Junk bonds on a roll
The market for high yield bonds, also known as junk bonds, has been strong over the past few years as investors venture into more risky fixed-income assets in search of higher rates of return.
The main driver has been the Federal Reserve's bond buying program, which has driven down interest rates on U.S. Treasury bonds. That has forced investors to hunt for higher yielding assets, such as corporate and municipal bonds.
"With monetary policy in Europe and the U.S. still accommodative, investors continue to search for yield," said Nick Stamenkovic, a macro strategist at RIA Capital Markets in Edinburgh. "And the junk bond market has performed very well recently."
Junk bonds are seen as more speculative because the companies that issue them have lower credit ratings. But analysts say default rates remain low and companies in general have large amounts of cash on their balance sheets.
"There are good reasons for high valuations on high yield right now," Guy LeBas, chief fixed-income strategist at Janney Capital Markets.
While interest rates have been creeping higher recently, the spread between high-yield bonds and U.S. government bonds remains at the lowest level since July 2007, according to data from Bank of America Merrill Lynch.
Bond yields fall when prices rise, so a smaller spread means there's strong demand for junk bonds.
Some Fed officials have expressed concern that bubbles may be forming in risky assets, such as junk bonds.
But most strategists don't expect the central bank to hike interest rates until next year at the soonest.
That suggests that the boom in junk bonds has more room to run.
"There's little evidence here that the rally in the high yield market is running out of steam," said Stamenkovic.
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