'The spigot turned off': How the stock market fall clobbered corporate debt

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Investors will be watching to see whether the steep decline was the remnants of 2018's late-year turmoil, or another sign that the economy is slowing.

Debt market activity slowed to a comparative crawl to start out 2019. as a whipsaw stock market retreat led to a general freeze-up in multiple areas of corporate lending and borrowing.

"It's all a function of the fact the markets shut down basically in December. It was unusual because normally credit leads equities. This was one where equities led the massive deterioration in credit," said Joseph LaVorgna, chief economist for the Americas at Natixis."The spigot turned off." Issuance plummeted across the board, from syndicated loans to mergers and acquisitions to institutional lending. Securitized products such as collateralized loan obligations also saw a huge drop in activity as did leveraged buyouts, according to data compiled by Refinitiv.

LaVorgna said he expects that with much better conditions in the stock market this year, that should lead to a turnaround in the corporate debt market.Underwriters quoted by Ioana Barza, director of analysis at Thomson Reuters who compiled the Refinitiv report, spoke about market conditions.

 

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