High Yield Daily Update

After the Bloomberg Barclays US High Yield Index was up 0.13% on Monday*, the high yield market is higher for the third straight day despite assets leaking from the index-tracking high yield ETFs. The short-dated high yield ETFs had a large outflow yesterday totaling $361M. Only one high yield bond new-issue priced yesterday and only two deals are on the forward calendar.  May was the lightest May since 2010 on the new issue front, with volume hitting $16.5B versus an average May volume of $40.7B.  The last five years May averaged $27B in high yield bond new issue proceeds.

Only one high yield bond default took place in the month of May and we expect this low default environment should continue as the US economic strength continues.  Speaking of the US economy, the May ISM Non-Manufacturing came in above estimates, with the backlog of orders the highest on record and new-orders were also above estimates.

We believe that the high yield market continues to offer attractive yield and absolute return opportunities for active managers such as Peritus, while we believe that the index-tracking managers will continue to fight the low rate environment with many higher rated (BB rated) issuers bringing bonds with low coupons, which seems to be reflected in the distribution yields.

* Bloomberg Barclays U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt (source Barclays Capital).
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