High yield bonds are opening weaker for a third straight day, and even though they rallied into the close yesterday, they still ended in the red. Weaker than estimated CPI, PPI, and wages are creating some volatility. To us this is no surprise as we have discussed how the aging demographics across the world will continue to be a major drag. If you want to dig further into pressures on consumers, look no further than California. This state continues to raise taxes on fuel, cars, goods/sales and income, thus leaving less to spend in the consumers’ pocket.
Three high yield bond new issues priced yesterday with a half dozen in queue. Tesla is looking at bringing a $1.5B deal today. Inflows into high yield bond mutual and exchange traded funds for week ending August 9th were positive, thus helping the new-issue market demand, but big outflows picked up from index tracking products yesterday. Oil, gold and the 10-year Treasury yield are all lower this morning. The high yield default rate ticked down again in July which affirms what we are seeing with company earnings, not much revenue growth but pretty healthy cash flows and earnings.