When the economic slows down, spreads are widening, there will be fewer primary bond issues. Is it because when the market is not good, the issuers need to offer high yield to attract people to buy their bonds? Issuers are not willing to offer high yield, so fewer primary issues?
Yeah that is part of the reason, another reason is that corporations usually borrow to refinance existing debt or borrow to expand operations. therefore in bad times that is less likely to take place as business expenditures and major capital investments are tightened and leverage is monitored to make sure that the business can survive the economic downturn/business cycle. When primary issues come back online after a downturn they tend to validate or enhance the valuation of existing market traded issues, which slowly reduces spreads overtime as the economy improves.
Precisely, when Economy goes down deleveraging at work. Recall 2008.
thank you !