The Bloomberg Barclays High Yield Index was down -0.12% yesterday,* as we saw many of the large index-inclusive flow names lower on the day. High yield bonds are opening lower today across the board. With index yields rising as prices decline and the 10-year Treasury yield easing to 2.87%, we see spreads widening fairly significantly.
Consumer Confidence came in less than expected, which is not surprising as the Administration can’t get their messaging straight on tariffs, China and the effect on the US economy. There has been constant confusion in the messages conveyed by the President, Mnuchin and Navarro. The good thing about high yield issuers is that many are mainly domestically-concentrated companies, which would make them less exposed to this issue than the larger multi-nationals. Chinese stocks are now considered in bear market territory. Given their economy is trade driven, while the US economy is about 70% consumer/service driven, we are in a better place to withstand the volatility of these negotiations.
No high yield bond new-issues came to market yesterday and so far this month, the primary market is well behind historical volumes. With next week a write-off because of Independence Day falling on a Wednesday, we’ll see how the market absorbs ten issuers for about $7.5B in proceeds on this week’s calendar.
High yield bonds saw ~$500M in outflows yesterday while floating rate loans continue to attract inflows. That is interesting since several institutions have recently said the 3.12% yield level we saw on the 10-year Treasury would be its peak in 2018. It often seems that the retail investor is late to the party and we believe that the passive-index tracking funds are too given their lack of ability to adjust their portfolio due to market changes.
Peritus I Asset Management is the sub-advisor to the Peritus High Yield ETF (HYLD), www.hyldetf.com, fund distributed by Foreside Fund Services, LLC. For questions, please contact Ron Heller, CEO of Peritus I Asset Management, LLC at firstname.lastname@example.org, 805-879-5620.