High Yield Morning Update

The high yield corporate debt markets are lower again today along with equities on the back of a stronger than expected PPI number and a shift to shorter-dated, higher rated securities.  Oil and most other fossil fuels are dramatically lower today in the face of the recent headlines that the IEA sees the US shale surge as the biggest oil and gas boom in history. You have the conundrum of OPEC pairing production yet shale is booming, with oil now here in the mid $50’s.  All eyes and ears are on a conference featuring the world’s most powerful central bankers that kicked off in Frankfurt.  The new Fed Chairman is skeptical on the interest-rate dot plot currently being forecasted by Chair Yellen.

No deals priced in the high yield market yesterday as one deal was pulled because of weakness in the market, thus meaning they would have to pay more to get it done.  There are twelve new-issues on the forward calendar.  We will see what demand there is as there is still a need for yield but with some outflows happening and weakness in the secondary market, these could take a few days to get to the market.

We believe that corporate America is in good shape as witnessed by all the earnings we are seeing and by Moody’s recently reported Liquidity Stress Index and their default outlook.  We believe this recent price weakness in the high yield market is simply investors moving money around, and it will likely eventually find its way back.  We continue to see opportunity with active vehicles, as many of those are positioned with a notably higher dividend and yield than many of the index-tracking products.

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