High yield debt was weaker on Friday and the month of February also closed out in negative territory. Even as the yield on the 10-year Treasury eased back to 2.85%, Friday’s concern was over slower US growth because of President Trump’s pending steel and aluminum tariffs. I don’t really understand the concern as all of these foreign countries have tariffs against our goods yet they are running a trade surplus with the US. Sometimes you need to take a little pain to achieve the gain.
The big news in high yield last week was the default and expected coming bankruptcy filing for iHeart Communications. This is a $16B default, making it the 6th largest on record, and as such a large issuer, many of their various debt tranches have been part of the indexes and the various passive, index-tracking products, many of which focus on tranche size versus fundamentals.
We also saw the 7th straight week of outflows from the asset class, with -$703 million leaving high yield mutual and exchange traded funds over the week, even as the economic landscape for corporate America is good. Though we still believe that you need to be able to choose the correct securities, as witnessed by IHRT’s expected BK.
10 new-issues for $3.475 Billion in proceeds came to market last week and many of those deals were 3X oversubscribed, indicating to us that there is still a huge demand for yield. Volume of first-lien institutional loans for February totaled $41.8 billion, nearly three times the $15.2 billion in January.