High Yield Daily Update

High yield bonds are better across the board today after finishing slightly better yesterday on the heels of inflows into the asset class.  There is a bit of risk off today as high yield ETFs and mutual funds are down slightly, while the underlying bonds are better bid.

Four new-issues came to market yesterday for $2 billion in proceeds and there are 14 new-issues on the forward calendar.  We believe that high yield will continue to see activity because it is one of the historically better performing asset classes in a rising rate environment due to its shorter duration and higher coupons offered than many other asset classes.

Moody’s Liquidity-Stress Indicator is at 2.7%, near its historic lows of 2.5%, and Moody’s forecasts the US speculative grade default rate to fall to 2% in January 2019, down from 3.2% today.  As we are nearing an end to earnings season with our own holdings, we are seeing much of the same as Moody’s is.

Equities are lower but still volatile on the heels of President Trump’s tariff talk but the markets are beginning to see that was an open negotiating point. He has his own way of “The Art of The Deal” but it does get the markets reacting.  Money is flowing into gold and silver as a bit of a safe haven against this uncertainty.  In contrast of spreads the JP Morgan US High-Yield Index sit at a spread of 402 bps versus the 384 bps spread for the JP Morgan European Currency High Yield Index.1

1  Jantzen, Nelson, CFA and Peter Acciavatti, “JPM High-Yield and Leverage Loan Morning Intelligence,” J.P. Morgan North American Credit Research, 3/6/18, https://markets.jpmorgan.com.  JP Morgan US High Yield index is designed to mirror the investible universe of the US dollar domestic high-yield corporate debt market, including issues of US and Canadian domiciled issuers.  JP Morgan European Currency High Yield Index is designed to mirror the investible universe of the European-currency denominated high-yield corporate debt market, including domestic and international issues.
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