High Yield Morning Update

The high yield bond market is opening higher today after a rough week, fielded by lower oil and large outflows, mostly from index-tracking retail high yield bond and loan funds. Loan funds faced their first outflow in 32 weeks, as post-election we have seen many piling into floating rate debt believing the pundits that rates are rising, all the while the 10-year Treasury yield falls from the December 2016 and March 2017 highs of 2.6% to 2.14% today, and also down from 3% during the taper tantrum at the end of 2014.  We are starting to see more bonds and loans trade below par ($100) for the first time in a while, creating more opportunities for discount purchases and potentially some capital appreciation in the future.

We have talked about how the aging demographics weigh on growth around the world and as more proof, the Eurozone PMI numbers were terrible.  Reports abound that Chinese demand for base metals is in decline, which is a catalyst for the commodity sector’s weak performance over the first half of 2017.

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