High Yield Morning Update

High yield bonds are weaker again today, with no specific driver for the weakness.  It seems that we are seeing some people take some chips off the table but the question is, where will they put it to get real tangible income?  Treasury yields are lower on the week, with the 10-year moving down from 2.27% last Friday to 2.22% today, as recent economic numbers are decent but not projecting historical growth.  Oil is higher, breaking the $50 barrier, as a recent report on the Permian Basis production is not nearly as strong as once thought.  There is an overabundance of natural gas and much less oil coming out of the ground, thus leading to the thought that this basin will not be the swing player in future production/pricing.  Stocks are lower too, much being fueled by risk sentiment related to the verbal threats with North Korea.

Earnings continue to flood in and we continue to see little top line growth but profitability is still doing quite well.  In many cases we are seeing the ready, shoot, aim mentality in stocks and bonds, as many read the headlines and sell immediately, creating volatility in names; however, if/when they do the work, in many cases the sell was not justified.  This can create an opportunity to establish a new position or add to an existing position, which we believe is one of the key values of active management versus passive/index-based products.

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