Outflows from index ETFs continue to outpace inflows to actively managed strategies, and the 10-year continues to trade above 2%, but high yield is trading with a firm tone this morning and has picked up momentum over the last couple days. There are a few reasons we’re seeing this happen. First, the high yield calendar has slowed over the last week or two as leveraged loan issuance has picked up, taking some of the high yield business and causing high yield investors to turn back to secondary issues to spend cash. Second, cash positions remain high for high yield investors after several years of massive inflows, which aren’t in any danger of being affected by the outflows of the last couple weeks. We would likely need to see sustained outflows for the technical picture to really change much. Third, 6% on the index, while light from a historical yield perspective, is still attractive today given the Fed’s desire to keep rates at zero and the need from the investment community for yield. Fourth, with the lack of yield from Treasuries, investment grade corporates, etc., the high yield asset class continues to garner attention from non-traditional high yield accounts who are either upping their allocation to the asset class or initiating an allocation. The underlying demand for the high yield asset class is a lot broader than it appears on the surface. Last year the trend was to buy any weakness in high yield, and if that were to continue, that very well could remain supportive of a strong market. Yesterday only one deal priced for $600mm in proceeds, clearing out the calendar until this morning when three drive-by deals were announced which should all price this afternoon. This morning equities are opening softer, HY19 Credit Index is flat and high yield cash bonds remain well bid.
Although information and analysis contained herein has been obtained from sources Peritus I Asset Management, LLC believes to be reliable, its accuracy and completeness cannot be guaranteed. This report is for informational purposes only. Any recommendation made in this report may not be suitable for all investors. As with all investments, investing in high yield corporate bonds and loans and other fixed income, equity, and fund securities involves various risks and uncertainties, as well as the potential for loss. High yield bonds are lower rated bonds and involve a greater degree of risk versus investment grade bonds in return for the higher yield potential. As such, securities rated below investment grade generally entail greater credit, market, issuer, and liquidity risk than investment grade securities. Interest rate risk may also occur when interest rates rise. Past performance is not an indication or guarantee of future results. The index returns and other statistics are provided for purposes of comparison and information, however an investment cannot be made in an index.