The Bloomberg Barclays US High Yield Index was up 0.10% on Friday,* but high yield bonds finished last week with spreads widening to Treasuries. Some of this was because the 10-Year Treasury yield drifted lower, while bond prices were weaker as well on the week. Leading the weakness in high yield bond market last week was the larger on-the-run, index inclusive bonds. Given there was an outflow from high yield bond mutual and exchange traded funds of -$1.73 billion for the week ending July 5th, this would be expected. No new-issue high yield bonds came to market last week and last month’s new-issuance was the lightest June since 2013. We should see a pick-up in issuance the next three weeks of July.
The June employment report came in strong and wage inflation does not appear to running above expectations. With the rising labor force participation helping lift the unemployment rate 0.2% to 4.0% this too should give the Fed confidence the economy is still growing on target without the wage inflation they fear will require them to act quicker. Keep an eye out for the PPI and CPI number for June due out this week.