High yield traders risk losing their trousers in 2015. Following years of growth, especially in Europe, the high yield market suddenly looks on shakier ground. And yet, banks are still hiring.
The latest arrival at the high yield hiring soiree is Wells Fargo, which Financial News says is recruiting ‘a high yield bond trader for cash and credit default swaps'. Deloitte is planning to make an entrance next year, with plans to ‘significantly bulk up in high yield’ in Europe. Already on the dance floor are Credit Agricole, which boosted its US high yield debt business in July, Bank of China, which has been hiring high yield traders in Hong Kong, Unicredit, which just hired a head of high yield bond syndicate from Permira, and Morgan Stanley, which hired Jane Bushey from Deutsche (allegedly on a very large package) to be head of European high yield back in August.
Banks’ enthusiasm for high yield is proportionate to recent growth in the revenue opportunity. In Europe, high yield bond issuance for 2014 is at a record high and has doubled since 2012 according to figures from Dealogic.
However, just as banks staff-up to avail themselves of the high yield bounty, the opportunity may be vanishing. Europe’s record year in high yield was mostly due to the first half, when a massive $120bn of high yield bonds were sold on the continent – compared to $125bn in the whole of 2013. In the months since June, European issuance has fallen off a cliff, and currently stands at just $37bn.
The low oil price and uncertainty surrounding emerging markets have the potential to hit high yield again in 2015. In delicate times, investors prefer safe harbours to risky bonds. “We enter 2015 facing the most significant threats to the established low-default, low volatility backdrop,” says the Financial Times today, quoting analysis from Citi.
This isn’t the first time anyone’s questioned the wisdom of banks bulking out in high yield. Headhunters raised the alarm back in July 2013. That turned out to be premature. Should banks be changing their hiring policies now?
One high yield-focused headhunter in London said small banks pushing into the European market now look too late: “Revenues were brilliant in the first half, but have been awful since.” The established banks are unlikely to make redundancies, he said – their teams are all lean. Less clear is what the past six months and the ominous future mean for high yield bonus pools: “Bonus allocation in high yield is especially political this year,” the headhunter reflects.