High Yield Daily Update

The high yield bond market finished better yesterday but is flat this morning, as are yields on various Treasury bonds across the curve, with the exception of the 30-year Treasury, as the yield there is down to 2.9%.  Three new-issues hit the market yesterday to the tune of $1.07B in proceeds and there are another half dozen building in the pipeline.  One must be careful in security selection, as the loan market had a record issuance of covenant-lite paper in 2017.  Covenant-lite is when a loan has more bond-like covenants, which provide weaker protections for the lender.  As inflows continue into the index tracking loan products this week, investor should be aware of the companies they are buying rather than just simply searching for a hedge against rising rates.  This is important when a company enters troubling financial times, when those financial maintenance covenants would become more relevant.

Oil has hit a 37-month high on record stockpile drawdowns.  It will be interesting to see how many rigs continue to come on board as the better technology that has been developed has made the shale drillers much more efficient and profitable.  Despite the extreme cold weather across the US, natural gas has not done much, too much supply and drilling in this space.

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