High Yield Morning Update

US Treasury yields are lower with the 10-year now at 2.12%, fueled by more weak economic news today with durable and capital goods much weaker than expected.  We see this as another sign that negative demographics are weighing on big ticket spending.  Europe is higher and excited today, seemingly because the Italian government is spending billions shutting down two banks.  In the high yield market, there are seven new-issue deals on the books for this week, after only one deal pricing on Friday.  High yield new issue bond sales are up 10% over 2016 but the number of deals are up 50%.1  With the continued low rate environment, we believe the need for high yield will remain.  Loan prices were hit last week and continue this week as Treasury yields move lower.  Outflows from both loans and bonds took the market lower last week.  The number of loans trading above par is now at 53.9%, down from 76% back in March.2   We are in the heart of summer as the fourth of July holiday schedule has kicked in, Monday’s and Friday’s are dead while the three day work week is robust.  With a light earnings calendar through the holiday, we don’t see a lot in terms of catalysts for the markets over the next couple weeks.

1 Acciavatti, Peter D., Tony Linares, Nelson R. Jantzen, CFA, Rahul Sharma, and Chuanxin Li..  “Credit Strategy Weekly Update,” J.P. Morgan, North American High Yield and Leveraged Loan Research, June 23, 2017, p.31, https://markets.jpmorgan.com.
2  Jantzen, Nelson, CFA and Peter Acciavatti, “JPM High-Yield and Leverage Loan Morning Intelligence,” J.P. Morgan North American Credit Research, 6/26/17, , https://markets.jpmorgan.com.
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