High Yield Morning Update

High yield bonds are opening better today after a quiet, flat day on Friday.  Two new-issues priced on Friday and September is now looking to challenge the biggest issuance month of the year, March’s $48B in new issue proceeds.  Of note, 43% of last week’s new issues were dividend deals going to private equity sponsors.  Additionally, with oil up in nine of the last ten sessions those credits are attracting buyers.

With the yield to worst on many of the high yield indexes around 5.5%1, and last month distributions for some of the larger passive products under this level, we believe investors should be thinking of active management.  We believe investors need to understand what they own, including looking at holdings that are trading at big premiums to call or maturity prices that could suffer pricing hits if and when there is profit taking in the sector, as many of the securities within the indexes are at very low yields.

1 Yield to Worst (YTW) is the lowest, or worst, yield of the yield to various call dates or maturity date.   For instance, the YTW on the Bloomberg Barclays High Yield Index is 5.5% as of 9/22/17.
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