High Yield Morning Update

High yield debt is softer again today as witnessed by some of the larger high yield bond index-based ETF’s now trading at a discount to NAV.  Oil is down over $1 and some are now expecting it might even reach the multi-year lows we saw in 2016.  Treasuries are flat on the back of better than expected existing home sales.  We did see mortgage rates drop last month, so could that have been an added help?

Paul Ryan said in his speech yesterday that we will not get GDP growth back to 3% unless we get tax reform.  As we said in our 2017 outlook letter (see “Pricing Risk and Playing Defense”), it doesn’t appear much will get passed in the near future as the gridlock seems like it will continue until maybe after the 2018 elections, as both sides struggle to get the necessary vote count.  Combine this with the aging demographic cloud in much of the world and we might not see 3% again in the years and maybe even decades to come.

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