High yield bonds were weaker to close out last week along with equities, as the Fed bumping up rates, the terrible budget deal and the proposed steel and aluminum tariffs weighed on markets. The fear of rising rates has subsided as the 10-year Treasury yield has eased to 2.83% after hitting 2.96% last week. Only one new-issue priced on Friday for $400M, increased in size from the initial proposed $300M. As I mentioned last week, seven new-issues are on the forward calendar as the earnings blackout season is over and lower rates may allow many companies to lock in attractive rates. Again, we are believers in higher growth with some of the recent legislative actions, but we also see a huge demographic pull which will offset this somewhat, so we don’t see soaring longer rates (for more on the demographic overhang, see our writings at www.peritusasset.com, including “Pricing Risk and Playing Defense“).
Oil traded up near a four year high overnight before pulling back; this is on the heels of the appointment of the HAWKISH John Bolton to the government payroll. He does not like the Iran deal and many feel when this deal gets torn up, this will take much of the Iran oil production off the market.
Despite the high yield mutual and exchange traded funds having outflows in nine of the past ten weeks totaling -$17.7 billion, the market has remained pretty stable and uneventful. As the demographic landscape continues to play out, rates around the world are below historical norms and we expect that you will continue to see demand for high yield bonds and loans. Peritus manages both asset classes.
For information on the AdvisorShares Peritus High Yield ETF (ticker HYLD), the actively managed high yield exchange traded fund that the Peritus team is sub-advisor to, please visit, www.advisorshares.com/fund/hyld, distributed by Foreside Fund Services, LLC.