High yield bonds are seeing strong demand today as it is risk on everywhere, after the Bloomberg Barclays High Yield Index was down -0.20% yesterday.* Equities, oil and gold are up, while the full Treasury curve is selling off following yesterday’s huge rally across the curve.
Yesterday saw one of the biggest widening of spreads in high yield bonds in months. Much of the weakness was due to a risk off tone because of volatility in Treasuries, even though the volatility was driving rates lower. The 10-year Treasury yield saw a drop from 2.93% to 2.78%, the biggest drop in nearly two years. Along with this came outflows in mutual and exchange traded funds to the tune of nearly $500M from high yield bond funds, while loan funds saw continued inflows.
With quarter over quarter Q1 GDP being revised down to 2.2%, Core PCE inflation in Q1 being revised lower from 2.5% to 2.3%, and Personal Consumption coming in below forecasts, the talk is that the Fed will keep to the three rate hike pace this year rather than four.
Given the volatility in the Treasury markets and given the continued low yields in many of the indexes and funds that track them, we believe that it pays to be with an active manager. Read our recent piece on “Finding Value in Active High Yield Debt Investing” at www.peritusasset.com.