Calm has returned to the markets and NYC following a failed pipe bomb explosion. It looks like the only one hurt was the idiot himself. Turning to markets, the high yield new-issue market was alive and well last week, with $10.48B pricing over 21 deals, fueled by the second straight week of inflows to the tune of $217M for the reporting week ending December 6th. This week looks like a Holiday week with only four leftover new-issues on the table. It has been a record year for new-issuance in investment grade as spreads are a bit tighter at the end of the year from where we started in 2017. The Fed meets this week and it’s expected that another ¼ point rate hike is in order. Today the 10’s and 30’s of the Treasury curve are lower in yield, pointing to yet another period of yield curve flattening.
Looking into 2018, we don’t see any major changes to what happened in the high yield market this year; currently we believe the high yield market is positioned for generating the coupon income plus a little capital appreciation potential. We have seen others, such as Northern Trust, come out with a similar view. We and others don’t expect to see a major selloff.
Investors still need income and given where Treasuries are and where we believe they are most likely going to be in 2018, we continue to believe that the tangible high income provided by high yield debt is attractive for an investor’s portfolio.