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Real-Time Market Perspectives

  • Inflation surged this June at its fastest pace in nearly 13-years amid a spike in used vehicle costs and price increases in the food and energy industries
    • The consumer price index (CPI) increased 5.4% from a year ago, the largest increase since August 2008, just before the financial crisis
      • Removing volatile food and energy prices, the core CPI rose 4.5%, the sharpest move since September 1991 and well above the estimated 3.8%
  • The U.S. economy added 850,000 jobs in June 2021, with robust hiring from restaurants and bars, public schools and retailers
    • Strong hiring in these industries further suggests a booming recovery for those employers that were hit the hardest during the COVID-19 pandemic, as Americans rush to return to indoor dining and shopping

M&A Markets

  • U.S. private equity dealmaking notched a record-setting pace through Q2 2021, with feverish activity in both mega-deals ($1 billion+) and the middle market
    • Through H1 2021, private equity firms have closed on 3,708 deals, worth a combined $456 billion – nearly two-thirds the deal value recorded in all of 2020
    • Deal activity is being driven by continued economic recovery, cheap debt, ample dry powder on the buy-side, and by the imminent possibility of a capital gains tax hike and elevated pricing on the sell-side
  • The runaway deal flow numbers posted by U.S. private equity in Q2 2021 are largely attributable to activity in the middle market, especially in deals under $500 million
    • Middle market deals accounted for 64.8% of overall private equity deals in H1 2021, the highest annual proportion on record
  • Private equity firms are also taking advantage of the frenzied demand for high yield debt not only to fund leveraged buyouts, but for record levels of dividend recapitalization and refinancing activity
    • Accordingly, the median buyout leverage multiple ticked up above 7x EBITDA for H1 2021
      • Although caution is warranted due to low data counts, 2021 could see the highest median leverage multiple since 2008 for large deals
  • Private equity firms continue to utilize the low rates due to the anticipation of a 2023 Federal Reserve interest rate hike

Debt Capital Markets

  • The institutional leveraged loan market continues to see strong demand as the economy continues to reopen and as the speculation of inflation puts the floating-rate asset class in focus
    • Total institutional leveraged loan issuance reached $145 billion year-to-date, the second highest quarterly amount over the past three-years, only beat by the $184 billion in Q1 2021
      • Also bolstering issuance were deals supporting buyouts and strategic acquisitions, which totaled $84 billion, or 58% of the total quarterly volume
  • Middle market leveraged loan volume increased to $46 billion in Q2 2021, its highest quarterly level since Q2 2018
  • High yield bond funds reported a $1.4 billion outflow for the week ending July 16th, ending the three week stretch of inflows for the asset class totaling $1.8 billion
    • Year-to-date net outflows for high yield bond funds total $17.1 billion following net inflows of $44.9 billion in 2020
  • Despite the significant high yield bond fund outflows year-to-date, new issues continue to track at a record pace after the July 4th holiday break
    • New issue volume ended H1 2021 at $283.5 billion – up 19.5% over H1 2020 volume, driven by an increase in refinancings and M&A / LBO activity
      • At the current rate, high yield bond new issue volume is set to surpass 2020’s record volume
  • For the investment grade bond market, H1 2021 and Q2 2021 both finished as the 2nd largest volumes on record, ending at $826 billion and $269 billion, respectively
  • The investment grade bond market remains favorable for issuers, with opportunities to issue at record low all-in rates due to the low Treasury rate environment and record low investment grade corporate credit spreads

Equity Capital Markets

  • The major U.S. indices are up approximately 15% year-to-date, with very strong performance in recent weeks
  • Volatility remains low, with the Chicago Board of Options Exchange (CBOE) Volatility Index (VIX) currently under 20
  • Accordingly, issuance activity has been steady and the market remains “open” with over 600 equity & equity-linked transactions pricing year-to-date raising over $220 billion

Sources: CNBC, WSJ, KeyBanc Capital Markets

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity