The Bloomberg Barclays US High Yield Index was up 0.22% yesterday,* and the high yield bond market is better again today, while equities are giving up their big run from earlier this morning.
In the latest quarter, distressed debt funds took in a good amount of cash in the private fund space. Given that many of the larger index-tracking products are giving investors what some see as a mediocre dividend, it looks like investors are searching for higher returns in distressed debt. What will be the catalyst? You know our opinions on the ratings agencies as per their effectiveness in assigning credit ratings—we believe they often get it wrong—but their data on corporate health and defaults is useful and is not showing distressed debt will be plentiful in the near future, and for what is out there, investors need to be selective as to what specific credits they invest in.
The 10-year US Treasury yield sits here at 2.87%, down from the multiyear high of 3.11% on May 11th after many said we were going to 4%. Many factors go into where rates are going and if you just follow the propaganda machines out there you will often be wrong—often deep pockets get on TV to sell their products. We believe that active research is required and if you go back and read our writing from the beginning of 2017 www.peritusasset.com you will see why we did not see a big move up in rates and still don’t.
There are only three high yield bond new-issues on the forward calendar for this week and thus the inflows into the asset class are pushing the large, on-the-run names higher and pushing several of the index tracking ETFs to premiums over NAV.