Pray for those injured or killed in last night’s shooting, including two of my friends who were injured but will be ok.
Today, high yield bonds are opening lower following the lead of oil and gold. Treasury yields are flat, while equities are up slightly. While the demand for yield remains, as more inflows came into the asset class last week, the supply of corporate bonds is seen as light going into October as compared to last October. There are nine new issues on the forward calendar after two priced on Friday for $2B in proceeds. Fourteen deals for $7.1B priced last week.
The VIX dropped another 6% last week and is down in 8 of last 10 sessions, while oil plowed through $52. This can reverse quickly, as seen by oil today down $1.50. Complacency is not what you need here. In order to fill out your fixed income portfolio wisely, we believe that you need to be with an active manager that can work to provide alpha while working to manage the risks of the markets for you. Given the index tracking products having a large share of their portfolios in BB rated securities and that segment of the market is at multi-year low spreads, we believe that these products don’t represent the value the high yield market has to offer and see risk if/when there will be a reversion to the mean.