Now that Labor Day is over and the hurricanes have passed, we have “risk-on” for the financial markets as the stock markets have been in positive territory in seven of the last ten trading sessions. Investors are selling Treasuries as we have seen the 10-year Treasuries go from a 2.05% yield to 2.17% today in a matter of days. Stocks are up again today, as are high yield bonds.
The high yield new issue calendar is bulging with 14 deals on the calendar after pricing three yesterday for approximately $2B in proceeds. Demand for not only new-issues but secondary high yield paper is there, as inflows into high yield bond mutual and exchange traded funds picked up last week and the need for yield is not going away.
We feel corporate America is in pretty good shape, as witnessed by the August close of the Moody’s Liquidity-Stress Index coming in at 3.4% versus an all-time low of 2.8% and Moody’s also expects the speculative grade default rate falling to 2.7% as we end the year, down from the July rate of 3.1%.