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Junk Bond Issuance Hits Lowest Level in a Year

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Debt issuance in the once sizzling junk bond market plummeted in June as volatility in U.S. Treasury yields and a souring of investor risk appetite deters corporates from raising capital.

High yield bond issuance has fallen 77 percent in June from the previous month to $14.4 billion, the lowest level in a year, according to data provider Dealogic, led by sharp declines in the U.S. and Europe.

(Read More: Junk Bonds Suddenly Don't Look So Good Anymore)

In Asia, deal activity came to a halt, with no high yield debt issued in the region this month. The last time there was no issuance was in September 2011, according to the firm.

High-yield debt, also known as junk bonds, are fixed-income instruments with a rating of 'BB' or lower by Standard & Poor's, or 'Ba' or below by Moody's, and have a greater risk of default compared to safer investment-grade bonds.

A low interest rate environment has driven the junk bond market in the past year, enabling companies that are less financially sound to get low-cost financing at a time when investors are searching for yield.

However, volatility in U.S. Treasury yields - which are used as a benchmark for pricing corporates bonds - has pushed companies looking to raise funding to the sidelines.

The 10-year U.S. Treasury yields have spiked to over 2.6 percent this week, from 1.6 percent in early May, unnerving both issuers and investors.

(Read More: Why Bond Selling Hysteria Is Overdone)

"There was a rush to issue in anticipation that yields would go up. Now, I suspect issuers are waiting on the sidelines for things to calm down. It's harder to price bonds in this environment, and you want investors who are comfortable," said Manpreet Gill, head of fixed income, currency and commodities investment strategy at Standard Chartered Bank.

In addition, with investors pulling out of bond funds, demand for high yield debt is also waning. "Funds have seen outflows so they don't know how much capital they have to work with," he said.

In the week ended June 4, U.S. high yield bond funds saw a record $4.63 billion in outflows, according to fund flow data from Lipper, a subsidiary of Thomson Reuters.

(Read More: Record Outflows From US Junk Bond Funds)

In order for issuance to pick up globally, Gill says there needs to be stabilization in U.S. Treasury yields.

For Asia, however, he said there is a high probability that there will be more slow periods, given the size of the region's corporate bond market which is far smaller than the U.S. and Europe in terms of terms of liquidity and number of issuers.

By CNBC's Ansuya Harjani