High yield is higher today alongside of equities, oil, and gold. The risk-on trade is being fueled by the speech by the Chinese leader where he spoke about opening certain of their markets to the US companies. Just like trading high yield bonds, negotiations always start with a big wide spread and you eventually get to the price or outcome somewhere in the middle. Worst case is you have the same portfolio or agreement that you went in with. On the back of Xi Jinping’s comments, aluminum flipped into backwardation, with metal for immediate delivery jumping to the highest premium in a month.
PPI numbers are out and no matter which way you look at them, they are stronger than expectations, but what does this mean for the economy? It’s good to see consumer demand is fueling this, but will the CPI be this hot, thus eating into discretionary spending? What is interesting is Americans are eating their vegetables as over half of the March increase in the index for final demand goods is attributable to a 31.5% jump in prices for fresh and dry vegetables.
No high yield bond new-issues priced yesterday, but nine have been added to the forward calendar. Given the 10-year Treasury has held steady under 2.8% we may continue to see a lot of companies coming to market as we approach the quiet period before earning announcements. It looks like credit quality has been improving, as Moody’s notes that issuers rated B3 and lower dropped to 12.7%, below the long-term average of 15%, and we continue to see this trend with the companies and industries we follow.