High Yield Daily Update

The Bloomberg Barclays High Yield Index was down -0.11% yesterday,1 and today the sentiment is definitely risk off as high yield bonds are down.  Some of this is fueled by continued outflows from the asset class.   To understand the magnitude of flows, there have been swings in flows of a few billion dollars from week to week but when you have a total market size of $1.7 trillion for bonds and another $1.1 trillion in floating rate loans,2 weekly flows are not overly important as it pertains to the market.  One high yield bond new-issue came to market yesterday and there are six expected to price today for a total of  about $3B in bonds, leaving several more for tomorrow for about $4B.

Retail bonds have led the way in recent performance in the various high yield index’s, but today they are leading on the way to the downside as Amazon is sending volatility through the pharmacy credits with their purchase of PillPack.  Technology is also weaker as the tariff debate with China continues with policy in the tech sector leading the headlines.

Oil credits remain steady as oil pushed through $73.  Several catalysts are in place for these higher oil prices, including the dynamics between Iran and the US, Libyan volatility, the Syncrude shutdown, and oil is in backwardation, reducing motivation for the oil industry to store oil.  Even though we have record production in the Permian basin, there is not enough infrastructure to get the oil to refineries and ports.  However the US still refined 17.82m b/d, the highest level recorded, with data going back to 1982.

1 Bloomberg Barclays U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt (source Barclays Capital).
2 Acciavatti, Peter D., Tony Linares, Nelson R. Jantzen, CFA, Rahul Sharma, and Chuanxin Li, “Credit Strategy Weekly Update,” J.P. Morgan, North American High Yield and Leveraged Loan Research, June 22, 2018, https://markets.jpmorgan.com, p. 51, 61.
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