High yield floating rate loan investors are proving fickle as money is slowing filing back into retail loan funds as rates on the longer end are rising a bit. The 10-year Treasury is touching the 2.63% level that was the 2017 peak, but is far below the one day hit at 3% a few years ago. The high yield bond market was largely flat yesterday, with the exception of a number of LCD’s flow-name bonds which were down slightly and opening a touch lower today on continued outflows and continued strong economic outlook putting rate rise fears at the forefront. Many don’t understand that high yield is one of the better positioned fixed income asset classes in that environment because of their higher coupons and shorter durations relative to many other fixed income options. To see our analysis on rising rates, read our piece “Strategies for Investing in a Rising Rate Environment.”
Four new-issues priced yesterday for $1.55B and there are an additional handful of the calendar. As retail investors are taking money out of the high yield bond market it appears there is a nice bid to the market, especially in the new-issue market from pensions and endowments as they adjust their 2018 models. The continued need for yield to meet expenses is only growing, which we believe should keep a bid in this market. This big demographic change will not go away any time soon.