High yield is better today as Treasury yields ease, while stocks, oil and gold all hover around unchanged on the day. There is some caution as witnessed by an outflow -$450M from high yield mutual and exchange traded funds for the week ending October 19th, while the BB credit spread on the Bloomberg Barclays High Yield Index is at a 10 year low. Where is the geopolitical risk or an unforeseen jump in inflation?
If you look at the Moody’s Liquidity Stress Index, it dropped to 2.8% in mid-October reaching lows not seen since April of 2013. This points to corporate liquidity strengthening and we see no imminent fear of accelerating defaults. Another indicator on the health of the high yield market is companies rated B3 or lower have declined, indicating that the overall health of the junk bond market is improving and it is composed of better quality credits. Only three new-issues priced for a paltry $460M, with much of the slowness driven by it being earning season as many companies have a blackout period in effect. There are six deals on the forward calendar.