“Wall Street junk-bond underwriters, selling debt at a record pace after the securities returned 19 percent last year, say it’s obvious that prices will drop when interest rates rise. So don’t blame the banks.
“Our job first and foremost is to properly structure deals for companies that can support their debt and perform well,” said Craig Packer, the New York-based head of Americas leveraged finance for Goldman Sachs Group Inc. “The interest-rate risk is just a law of nature.”
JPMorgan Chase & Co., Deutsche Bank AG, Citigroup Inc. and Bank of America Corp. are leading firms benefiting from growth in a market where the average underwriting fee is almost three times as big as for selling more creditworthy bonds. At the same time, bankers warn that demand underpinned by Federal Reserve debt purchases could evaporate, driving down prices.
Banks have underwritten $89.6 billion of high-yield debt so far this year, up 36 percent from the same period in 2012, according to data compiled by Bloomberg. Last year’s $433 billion of sales was an all-time high for the asset class and produced about $6 billion in fees, the data show. Meanwhile, investors poured $33 billion into mutual funds and exchange- traded funds dedicated to junk bonds last year, 55 percent more than in 2011, according to Morningstar Inc.
Misleading Investors…”
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