High Yield Morning Update

Risk is back on in a big way today as people wake up to learn the sun did come up and there is no crisis going on, just some profit taking and rebalancing.  High yield is higher as that need for yield did not disappear and we don’t anticipate it will during our lifetime.  More outflows from the asset class are making it a buyers’ market, as secondary paper is looking for a bid while the new-issue market is attracting the cash.  There is expected to be a several billion dollar outflow number for the latest week when Lipper reports after the close today.  High yield bonds have sold off much more than loans during this recent period of volatility and that’s why we believe it is beneficial for us, and our investors, that we have the flexibility to allocate a portion of our active strategy to loans.  Some less volatility with what we see as still attractive tangible yield is always good to complement to our high yield bond allocation.

The focus today is on the tax bill vote and there are many different opinions on how this bill could impact the high yield market as there are potentially limitations to the deductibility of interest yet the corporate rate will be lowered, so to us this will be a company by company analysis and not an overall market call as each company is different in how they issue debt and what tax bracket they will be in per their profit generation.

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