High yield bonds are following yesterday’s lead by having another positive day. While Treasury yields are creeping back up from their YTD lows, the hunt for yield is not and will not go away. Oil is a touch lower but is near a seven week high and is up in eight of ten sessions, while gold is a touch higher as stocks continue their grind higher. Energy names are leading the high yield market higher, with a few names showing up on the stock IPO forward calendar. Two new issues priced yesterday and there are still eight more deals on the forward calendar. Additionally, Toys R Us filed Chapter 11 yesterday as the retailers keep struggling.
As we close out the third quarter there is a lot of chatter about the bank corporate earnings and how will fixed income trading rules impact them. The government tied their hands with the Volcker Rule inside of the Dodd Frank regulations. There is still trading taking place, but the margins for these guys have eroded. Outside of supporting their own deals with their capital in the new issue market, we see little in the way of activity other than taking orders, and there are minimal margins there.
We believe that there is still attractive yield out there but investors need to understand where to find it. So many have gone to the lower cost, index-based products, but we believe they have also given up notable yield and potential total return opportunities by doing so. We have recently written about the high yield indexes, to help people understand what is in an index and index based product in the high yield market, in our piece, “Understanding an Index.”