After a period of virtually uninterrupted growth stretching from 1994 through the first half of 1998, the high yield market suffered a sudden, jarring setback that led to the widest credit spreads seen since 1991. With the global spread of the Asian flu in August, spreads became so wide that the market for new issues virtually ceased. The most frequently used word to describe conditions in the high yield market during this period was “carnage.”
Then, in response to the Federal Reserve's series of rate cuts beginning in late September, the market staged a modest recovery that carried through the end of the year. Since then, the market has experienced several periods of alternating strength and weak ness, and new issuance has moderated relative to the record levels of a year ago. This article examines last year's volatile new issue environment and analyzes recent developments that can be expected to influence financing opportunities for corporate issuers in the near future.