High yield bonds finished slightly higher yesterday and are following suit again today, as are floating rate loans. The Bloomberg Barclays US Corporate High Yield Index was up 0.10% on Monday. Money continued to leak out of the bond component of the high yield debt market, while the inflows to floating rate loans continue. The percentage of loans trading above par has risen to 60.0% from a year-to-date low 54.7% on May 30th, although this number is below the 80.5% high on set on February 2nd. One high yield bond new-issue priced yesterday and there is a fairly light forward book. May’s new-issuance was the slowest May in eight years.
Oil is higher today despite that EIA report yesterday that showed US stockpiles way above estimates. Maybe some of this is short covering and maybe some is the fact that many feel Venezuela’s problems will smooth out the inventory problem in the coming months. With the 10-year Treasury rising closer to that 3% mark and European yields rising, it appears the need for yield is greater than the risk.
We are in a period of uncertainty in many areas of fixed-income investing and many advisors I speak to don’t really understand how very different an active manager like Peritus is compared to an index-tracking, passive fund. Generally the large funds have huge marketing budgets so that is what is frequently seen on TV and believe it or not it often makes advisors comfortable as big means safe to them. Many also stay away from the high yield bond and loan market because they think it is still the risky and small market that was the driver behind corporate growth and M&A in the 80’s and 90’s. I would encourage you to go read our white paper on the HY market at www.peritusasset.com, entitled “The New Case for High Yield: A Guide to Understanding and Investing in the High Yield Market,” to learn about how the high yield market has developed over the past three decades and why we believe that an active allocation to high yield should be a core position in investors’ fixed income bucket.
* Bloomberg Barclays U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt (source Barclays Capital).